Kalshi Wins Injunction as Federal Judge Overrides State Challenge

Kalshi scored a key legal victory on February 20. A U.S. federal judge blocked Tennessee from enforcing state betting laws against the platform. U.S. District Judge Aleta Trauger granted a preliminary injunction. That allows Kalshi to keep operating while the case continues. 

⚡️FEDERAL JUDGE SIDES WITH KALSHI

U.S. District Judge Trauger granted Kalshi an injunction blocking Tennessee from enforcing betting law.

The court said Kalshi is likely to win, ruling its sports contracts qualify as swaps under federal law and may override state regulation. pic.twitter.com/gr52eQWuBm

— Coin Bureau (@coinbureau) February 20, 2026

The court said Kalshi is likely to win its argument. That its sports event contracts qualify as federally regulated swaps under the Commodity Exchange Act. Because of that, federal oversight may override conflicting state gambling rules. The decision gives Kalshi breathing room. It also raises the stakes in the wider prediction market fight.

How the Conflict Began

The dispute started in early January. When Tennessee’s Sports Wagering Council sent Kalshi a cease-and-desist order. State officials argued the platform was offering unlicensed sports betting products that violated local gambling laws. Regulators pointed to licensing requirements and age protections. That Kalshi allegedly didn’t meet under state rules.

Kalshi quickly pushed back. The company filed a federal lawsuit claiming its contracts fall under the Commodity Futures Trading Commission, not state gaming regulators. It argued the products are financial event contracts, not traditional sports bets. A temporary restraining order arrived in mid-January, which paused state enforcement. The new injunction now extends that protection.

Federal Preemption at the Core

Federal Judge Trauger’s ruling focused heavily on federal preemption. The court said Kalshi showed a strong likelihood of success on the merits. Specifically, the Federal judge agreed the contracts likely meet the legal definition of swaps traded on a regulated exchange. That distinction matters a lot. If the contracts fall under the Commodity Exchange Act, then federal law takes priority over state gambling rules. 

The ruling doesn’t end the case. But it signals the court currently views Kalshi’s legal position as strong. Importantly, the Federal judge emphasized this is still a preliminary decision. The full trial will determine the final outcome. Still, early signals like this often shape how similar cases unfold.

National Ripple Effects

The decision lands in the middle of a growing national battle over prediction markets. Several states have challenged platforms offering event-based contracts. Some courts have sided with regulators. While others have favored federal oversight. Because of that split, the legal landscape remains uncertain. 

However, this Tennessee ruling strengthens the argument that federally regulated event markets may bypass state-by-state gambling controls. That possibility could open the door for broader expansion. The crypto and prediction market communities reacted quickly. Supporters called the ruling a major step toward regulatory clarity. Others warned that early wins don’t guarantee long term success. Especially if appeals follow.

What Comes Next

For now, Kalshi can continue operating in Tennessee while the lawsuit moves forward. The state could still appeal the injunction. Additionally, the final merits decision remains ahead. Even so, the ruling adds momentum to the federal first narrative in prediction markets. If more courts follow this logic, the industry could see faster nationwide growth. Until then, regulators, traders and crypto observers will keep watching every move in this legal chess match.