A new legal and regulatory debate is emerging over whether U.S. states or the Commodity Futures Trading Commission (CFTC) should oversee the rapidly expanding prediction markets industry. The dispute follows a federal appeals court ruling that Kalshi cannot prevent Nevada gaming regulators from supervising its platform.
Kalshi and the CFTC maintain that sports event contracts qualify as “swaps” under the 2010 Dodd-Frank financial reforms, giving the agency authority to oversee them through its regulation of national swaps markets.
David Schwartz, Ripple’s CTO emeritus, responded to an X post by sports betting and gaming attorney Daniel Wallach. Wallach argued that the CFTC’s rulemaking was effectively “dead on arrival” under the major-questions doctrine, which restricts federal agencies from asserting broad powers without clear authorization from Congress.
Schwartz challenged that reasoning, saying the central issue is whether Congress delegated authority to regulate gambling conducted through exchange-traded contracts.
“This seems to be incorrect to me. The question is only whether Congress delegated the power to regulate gambling through exchange-traded contracts. As Kalshi correctly points out, traditional sportsbook gambling is very different,” Schwartz wrote.
This seems to be incorrect to me. The question is only whether Congress delegated the power to regulate gambling through exchange traded contracts. As Kalshi correctly points out, traditional sportsbook gambling is very different. https://t.co/EY6MKlq1Mx
— David ‘JoelKatz’ Schwartz (@JoelKatz) August 28, 2026
Elaborating on his position, Schwartz stated: “Of course Congress didn’t intend to replace state-regulated sportsbook gambling with exchange-traded products outside of state regulation. It meant to create a new, uniform federal framework for creating exchange-traded products outside of state regulation.”
How the Kalshi prediction markets case began
The legal battle started in March 2025, when the Nevada Gaming Control Board issued Kalshi a cease-and-desist letter. The regulator alleged that the company’s sports event contracts amounted to an unlicensed sports pool under Nevada gaming law.
Kalshi countered that the CFTC’s authority over swaps preempted Nevada’s gambling regulations.
On Friday, the 9th U.S. Circuit Court of Appeals in San Francisco upheld Nevada’s authority to regulate Kalshi’s prediction market activities. Circuit Judge Ryan Nelson said the contracts bear the characteristics of sports betting, “a quintessential form of gambling” that falls outside the CFTC’s regulatory jurisdiction.
“The CFTC is not a national gambling regulator,” Nelson said, adding that “it is difficult, then, to conclude that Congress intended to upend its decades of careful regulation of gambling based on broad definitions of the words used in a Wall Street Reform Bill.”
