January 12: Tennessee Hits Polymarket, Kalshi With Cease-and-Desists
Polymarket is back in the spotlight after Tennessee’s Sports Wagering Council issued cease-and-desist orders this week to Polymarket, Kalshi, and Crypto.com, instructing them to stop offering sports event contracts to state residents. Regulators say these products qualify as unlicensed sports wagering under state law. For U.S. investors, the move could slow user growth, thin liquidity, and raise compliance costs across event-driven platforms. We break down the orders, potential market effects, and the key signals to watch as prediction markets regulation develops through 2026.
What Tennessee Ordered and Why
The notices direct the platforms to halt sports outcome contracts for people located in Tennessee. The Council states these wagers cannot run without a state license. According to public statements, the action targets sports markets, not non-sports event contracts. Companies are expected to comply immediately while they review options. Users in the state should prepare for geofencing or suspension of open sports positions, depending on each platform’s policies.
Polymarket, Kalshi, and Crypto.com received the orders. For Polymarket, the step arrives just weeks after its U.S. relaunch, marking its first state-level cease-and-desist, per The Block. Kalshi operates a CFTC-regulated venue for event contracts, but sports outcomes raise separate, state-level issues. Crypto.com must also stop sports contracts for Tennessee users. Each firm has signaled it will review the directives before commenting further.
Implications for Prediction Markets
Geofencing in Tennessee can narrow order books, especially in major sports markets. With fewer participants, spreads can widen and slippage can increase. Polymarket may see reduced volumes in U.S. hours if other states copy the move. Market makers could scale back until policy risk clears, which can pressure pricing accuracy and dampen returns for active traders during peak events.
State sports betting rules sit alongside federal oversight of event contracts. That split leaves Kalshi sports betting proposals under extra scrutiny, even if non-sports markets are federally supervised. As reported by CoinDesk, Tennessee focused on sports. Investors should track state-level actions, potential guidance from the CFTC, and any court filings that may define prediction markets regulation across different event categories.
Investment Angle: Crypto and Platform Risk
For Polymarket, a pause for Tennessee users could slow new signups and shrink sports liquidity. If volumes dip, fee revenue and market-making incentives may weaken. Kalshi could face higher compliance spend to ring-fence sports activity. Crypto-linked flows tied to sports outcomes may also soften, which can reduce on-chain settlement and lower promotional activity tied to marquee games.
Three paths are possible. First, limited geofencing with fast compliance, which contains impact. Second, copycat orders from other states, which would weigh on volume and spreads. Third, legal challenges that seek clarity on the line between event contracts and sports wagering. Polymarket users should watch communication channels for updates on access, withdrawals, and contract settlements.
What Tennessee Users Can Do Now
Affected users should expect location-based blocks on new sports contracts and possibly on adding exposure to existing ones. Platforms usually maintain access to funds and non-impacted markets, but users must verify in official notices. Check email and in-app messages from Polymarket and Kalshi, review terms, and consider reducing leverage or hedging exposure while rules are clarified.
Avoid workarounds like VPNs that break terms of service. Keep records of trades, deposits, and withdrawals for tax and audit purposes. Monitor regulator announcements and company blogs for next steps. If you rely on event markets for hedging, consider alternative instruments with clear permissions. When uncertain, seek licensed advice before placing new sports-related wagers.
Final Thoughts
Tennessee’s move adds a new layer of state-level risk for event-driven trading. For investors, the near-term impact centers on thinner liquidity in sports markets, wider spreads, and possible delays in new product launches. Polymarket, Kalshi, and Crypto.com will likely prioritize compliance and geofencing while they assess options. If other states follow, volumes could drift lower until rules stabilize. We suggest watching official platform updates, any fresh CFTC guidance, and early signals from other state regulators. Position sizing matters more in uncertain regimes, so consider smaller orders, clearer risk limits, and alternative instruments for hedging until the regulatory picture becomes clearer.
FAQs
What did Tennessee order and who is affected?
The state’s Sports Wagering Council told Polymarket, Kalshi, and Crypto.com to stop offering sports event contracts to people located in Tennessee. The orders cite unlicensed sports wagering under state law. Non-sports event markets were not the stated focus. Tennessee residents using these platforms should expect geofencing or access limits on sports-related contracts.
Does this mean Kalshi sports betting is illegal everywhere?
No. The action is specific to Tennessee and to sports outcome contracts. States regulate sports betting, while some non-sports event contracts may fall under federal oversight. Other states may take different views, so users should review local rules and platform notices before trading any sports-related contracts on Kalshi or similar venues.
How could this impact Polymarket’s liquidity and pricing?
If Tennessee users are blocked, participant counts can drop, which often widens bid-ask spreads and increases slippage in sports markets. Liquidity providers may reduce activity until risk eases. That can lead to fewer tradable markets, lower size limits, and less efficient pricing during peak events, especially if other states mirror Tennessee’s approach.
What should investors watch next in prediction markets regulation?
Monitor statements from the CFTC, updates from state regulators, and any legal filings that test the line between event contracts and sports wagering. Also follow platform communications on geofencing, settlements, and product lists. Early signs of coordinated state action, or clearer federal guidance, will likely drive volumes, spreads, and user growth trends.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
