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A federal judge has temporarily blocked Tennessee regulators from shutting down prediction market operator Kalshi, allowing the platform to continue offering event contracts to state residents while a lawsuit over federal preemption proceeds. U.S.
District Judge Aleta Trauger granted a temporary restraining order preventing the Tennessee Sports Wagering Council from enforcing a cease and desist order that would have required Kalshi to halt operations by Jan. 31.
The ruling pauses enforcement at least until Jan. 26, when a preliminary injunction hearing is scheduled to determine if protections will extend further.
In her order, Judge Trauger indicated that Kalshi is likely to succeed on the merits of its claims in the Kalshi lawsuit and would suffer irreparable harm if the state were allowed to proceed.
The TRO comes shortly after Tennessee regulators issued an enforcement action directing Kalshi, prediction market Polymarket, and crypto exchange Crypto.com to halt all sports related event contracts for state residents,cancel open contracts, refund deposits, and wind down in state operations by Jan. 31.
Regulators warned that noncompliance could trigger civil penalties of up to $25,000 per violation and criminal referrals for aggravated gambling promotion.
Kalshi immediately challenged the enforcement in federal court arguing that federal derivatives law preempts state gambling statutes because the platform is regulated by the U.S. Commodity Futures Trading Commission (CFTC) as a designated contract market (DCM).
The company has raised similar arguments in other states asserting that sports event contracts are federally overseen derivatives rather than state regulated gambling products. This central claim forms the core of the Kalshi lawsuit.
While Trauger’s TRO does not resolve the preemption issue, it temporarily shields Kalshi from Tennessee’s enforcement efforts allowing the platform to continue operations in the state.
Federal courts in New Jersey and Nevada have previously issued similar preliminary injunctions in favor of Kalshi, whereas a Maryland court last year denied relief highlighting the inconsistent legal landscape surrounding the Kalshi lawsuit.
The case reflects ongoing debates over whether sports based event contracts should be considered commodities under federal jurisdiction or gambling instruments subject to state regulation.
The CFTC maintains that Kalshi’s operations fall exclusively under its oversight, while states like Tennessee express concerns about consumer protection, market integrity, and regulatory compliance, according to the cease and desist order cited in the Kalshi lawsuit.
The TRO ensures that Kalshi can continue offering products to Tennessee residents while the court reviews the Kalshi lawsuit.
The outcome of the Jan. 26 hearing will determine whether the temporary shield becomes a longer term preliminary injunction, shaping the regulatory future of Kalshi and similar platforms.
