Polymarket Under Fire In Tennessee Over Gambling Violations

Barely relaunched in the United States, Polymarket is already facing local regulation. Tennessee has just issued an official injunction, accusing it of illegally offering contracts on sporting events. This decision, a first at the state level, could mark a turning point in the legal battle between blockchain platforms and state authorities. At the heart of the case is the legitimacy of predictive markets under federal regulation versus strict local gambling laws.

A firm injunction : Tennessee demands the immediate halt of sports contracts

While Polymarket had obtained a waiver from the CFTC, on January 9, 2026, the Tennessee Sports Wagering Council (SWC) sent a cease and desist letter to three major predictive market platforms.

These documents, made public by specialized lawyer Daniel Wallach, demand the immediate cessation of the offer of contracts on sporting events to Tennessee residents by the platforms Polymarket, Kalshi, and Crypto.com. The regulator also requires the cancellation of all ongoing contracts involving local users, as well as the refunding of customer deposits before January 31, 2026, under threat of sanctions.

In the letter addressed to Polymarket, the SWC executive director, Mary Beth Thomas, states unequivocally: “the contracts on sporting events offered on the Polymarket platform do not comply with the consumer protections of the State of Tennessee (and many others), and represent an immediate and significant threat to the public interest of Tennessee”.

The legal framework invoked by Tennessee is based both on gambling regulation and on the state penal code. The SWC clearly details the consequences in case of non-compliance with this injunction :

• Progressive fines : $10,000 for a first offense, $15,000 for a second, and up to $25,000 for subsequent offenses ;

• Possible legal action : recourse to injunction measures before state courts ;

• Criminal prosecutions : promotion of gambling is punishable as a Class B misdemeanor, while aggravated promotion may be a Class E felony ;

• Violation of consumer protection rules : the SWC reproaches Polymarket for not complying with local requirements such as age restrictions, anti-money laundering controls, and responsible gaming obligations.

For the regulator, and based on on-chain data, these platforms operate outside any state legal framework and constitute both an economic and social threat. This offensive marks a sharp hardening of Tennessee’s stance toward predictive markets, especially in the sensitive area of sports.

A questioning of legality

In response to this injunction, Kalshi announced it has filed a complaint in federal court, contesting what it describes as an “illegal attempt by Tennessee to ban predictive markets in the state”.

A spokesperson for the platform said : “as other jurisdictions have recognized, Kalshi is a federally regulated exchange for real-world events, under exclusive federal jurisdiction. It is fundamentally different from bookmakers and casinos regulated by states”.

While Polymarket and Crypto.com have not yet officially responded, lawyer Daniel Wallach indicated on X that legal proceedings are imminent, suggesting these platforms might follow the legal path opened by Kalshi.

The central issue in this battle is the legitimacy of the federal approval granted by the CFTC. Polymarket, Kalshi, and NADEX are all registered as Designated Contract Markets (DCM) with the Commodity Futures Trading Commission, theoretically allowing them to operate nationally.

They argue that this federal regulation overrides local laws, a position already tested in several cases before federal courts. Tennessee, in turn, argues that these platforms offer disguised forms of illegal sports betting and do not comply with state rules regarding minor protection, anti-money laundering, and responsible gambling.

Beyond the legal dispute, Tennessee’s action reflects growing concern among state regulators about emerging platforms that could circumvent local betting monopolies and reduce associated tax revenues. This is not the first warning. In April 2025, the SWC had already expressed opposition to predictive markets in a letter addressed to the CFTC, and in November, its director warned against the threat these platforms pose to licensed sports betting operators and their contributions to education via local taxation.

This injunction adds to an already tense climate for Polymarket, weakened by a security breach exposing user data. Between increasing regulatory pressure and technical vulnerabilities, the platform will need to clarify its model and strengthen compliance if it wants to avoid being excluded from an increasingly demanding American market.