For Kalshi, an 'emergency' is a state AG suing it

Kalshi and Polymarket are sports-betting companies. That's not me saying that, it's Google. When I typed the names Kalshi and Polymarket into the Chrome searchbar (I know, how quaint), that is the first result that came up. "Sports betting company." For both of them.

The activity on these sites would seem to bolster that description. About 90% of Kalshi's trading volume is for sporting events, according to the Financial Times. For Polymarket, about 65% of its trading volume is tied to sports; crypto makes up about 13% and politics also 13%. Moreover, both of these companies were launched in New York City. Both of them are headquartered in New York City. You might think, therefore, that these are sports-betting companies operating in New York City that are subject to New York state gambling laws. 

The Commodities Futures Trading Commission doesn't think so.

The CFTC on Tuesday exercised "emergency" authority to block a lawsuit against Kalshi filed by the New York Attorney General, Letitia James. Kalshi apparently contacted the CFTC and said it had an emergency – it was being sued by James's office – and the CFTC stepped in. As far as the CFTC is concerned, Kalshi and Polymarket (both of which count the president's son as an advisor) and their ilk are derivatives exchanges, not gambling sites, and should be regulated by the federal government's derivatives regulator, the CFTC.

I guess when you operate in a legal grey zone, then yes, a state Attorney General suing you is an emergency. And that illustrates the whole problem, really.

"New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings," CFTC Chairman Michael Selig said in a release. "Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws."

Selig should be careful about invoking what he thinks Congress intends; multiple bills have been introduced that would restrict how these companies operate. But the larger question is, of course, what are these things, and what purpose do they serve? Answering those questions should lead to how they should be regulated. To an extent, that is the exact same dilemma raised by the existence of bitcoin and cryptocurrencies. In both cases, the problem is these things don't fit neatly into existing categories.

There is no doubt that Kalshi and Polymarket make most of their money off people betting on the outcome of sporting events. Where I grew up, that is pretty easily defined as gambling. But these sites aren't a traditional "house," and that's where it gets tricky. In its release, the CFTC took pains to point out that Kalshi acts as a clearinghouse for interested parties, who are directly engaging in contracts with each other. While there is also a good question about the process these exchanges use to determine "the truth," one can plausibly argue that these are not gambling sites, at least in the traditional sense. 

But they are not derivatives exchanges, either. First off very little of their actual business is anything market-related. But more important than that is to ask yourself, what is the point of the platform? Derivatives exchanges grew up out of commodities exchanges, which were a way to standardize trading for farmers and smooth out the sometimes volatile nature of, well, Mother Nature. Derivatives were a way to add a time element, to smooth out the future, so to speak. So for anybody involved in the production of commodities, these markets make sense and there is a natural social benefit.

Read more:

• The top-performing 20 public banks with under $2B of assets in 2025
• The top-performing banks with $2B to $10B of assets in 2025
• 'The data has to be perfect': BofA CEO Moynihan on AI
• Should a bank ever be liable when a customer gets scammed?

What social benefit do Kalshi and Polymarket provide? What are they focused on? Where do they make their money? They have virtually nothing to do with commodities, or even securities. And, look, there doesn't necessarily need to be a social benefit to them. Lots of completely legal things have no social benefit. Gambling is legal, after all, as long as it is licensed. But the structure of their platforms is not a traditional gambling house, either.

What this means is that we can't easily put them in a bucket. The CFTC and AG James both are trying to stake out some turf here, but I think ultimately the lines need to be drawn by, and will be drawn by, Congress. Until then, these markets are operating in a legal grey zone and having anything to do with them is risky.