Kalshi sued Minnesota in federal court this week, joining Donald Trump‘s Commodity Futures Trading Commission in challenging a law signed by Tim Walz that would make the state the first to criminalize prediction markets starting Aug. 1.

Walz signed the bill May 18, and the CFTC filed its challenge the following day. Kalshi joined this week with its own complaint targeting state Attorney General Keith Ellison, Walz and gambling enforcement chief John Anglin.

State lawmakers framed the measure as a consumer protection crackdown on what they called unregulated sportsbooks operating inside Minnesota.

If the courts uphold the law, Kalshi may have to pull out of the state by Aug. 1 or risk criminal exposure for its executives.

Kalshi argues the law violates the Supremacy Clause, since the Commodity Exchange Act gives the CFTC exclusive jurisdiction over derivatives traded on designated contract markets.

The argument hinges on Kalshi’s status as a federally registered contract market, a standing rival Polymarket lacks since it operates offshore using crypto. The company says the law’s marketing ban also breaches the First Amendment.

In a May 26 Truth Social post, Trump gave a full-throated defense of the prediction market industry, insisting the CFTC keep "exclusive authority" over platforms like Kalshi and Polymarket and branding opponents including Chris Christie, Tim Walz, and JB Pritzker "SCUM."

The CFTC’s parallel lawsuit is unusual. Federal regulators rarely sue states to defend a private company’s right to operate, suggesting the agency views the Minnesota law as a direct threat to its jurisdiction.

Kalshi has already secured preliminary injunctions against New Jersey and Arizona, making Minnesota the third state where the company has gone to federal court to block enforcement.

The most direct public-market exposure runs through Robinhood Markets (NASDAQ:HOOD), which embeds Kalshi event contracts inside its app and may benefit if federal preemption holds.

Kalshi and Polymarket are valued at $22 billion and $9 billion respectively, with Bernstein forecasting prediction market betting volumes could hit $1 trillion by 2030.

A House committee last week opened an investigation into whether government employees may be trading on nonpublic information through prediction market platforms, while Indonesia, Spain and India have banned prediction markets in the past week.

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