Minnesota’s attempt to become the first state to criminalize prediction markets hit a federal wall on Monday. U.S. District Judge Katherine Menendez granted Kalshi, Polymarket and the Commodity Futures Trading Commission a preliminary injunction against SF 3432, Decrypt reported, blocking enforcement of the statute that was due to take effect Saturday, August 1.
The 44-page order bars Minnesota from enforcing the law against exchanges registered with the CFTC as designated contract markets, and it holds until the court rules on the merits. Menendez found the three plaintiffs likely to succeed on their express-preemption claims under the Commodity Exchange Act, and found the platforms likely to suffer irreparable harm if the criminal statute switched on while the case was still being argued.
For traders, the practical effect is simple: Kalshi and Polymarket keep operating in Minnesota for now, and no one faces state criminal exposure for listing or facilitating event contracts on a federally regulated venue while the injunction stands.
The line the judge drew through “swaps”
What makes this ruling more interesting than a straight win for the platforms is where Menendez drew the boundary. Whether Minnesota’s law is preempted, she wrote, turns on whether the trades at issue qualify as “swaps” within the meaning of the Commodity Exchange Act — the definitional question the CFTC itself walks through in its own prediction markets explainer, which describes event contracts as derivatives tied to the outcome of specified occurrences.
Contracts on Senate races, the World Cup winner, or the reopening of the Strait of Hormuz clear that bar, the judge found, because they concern events with clear potential economic, financial or commercial consequences. But Kalshi markets on who wins Love Island USA, or on what announcers say mid-match, likely do not. That is not a throwaway observation. It is a signal that the eventual merits ruling could protect the serious end of the order book while leaving entertainment-flavored contracts exposed to state regulation — Menendez said outright that permanent relief “may be much narrower,” and faulted both sides for treating the dispute as “all-or-nothing propositions.”
The procedural posture sharpens that point. The CFTC confirmed at the July 2 hearing that its challenge is facial — meaning it must show there is no set of circumstances in which the law would be valid. Menendez found the statute “may not be preempted in all its applications” and enjoined it anyway to preserve the status quo. That is a court keeping the lights on while it decides where the federal-state line actually sits, not a court declaring state authority over event contracts dead.
A five-state front, and a self-imposed deadline
Minnesota is one battle in a wider campaign. The CFTC has sued multiple states over prediction market restrictions — Illinois, Arizona, Connecticut, Wisconsin and Minnesota among them — and in Minnesota’s case, the Department of Justice and the agency filed within hours of SF 3432 becoming law, with Kalshi following days later. It is an unusual sight: a federal regulator suing states to protect the exchanges it supervises, an inversion of the years when Kalshi and the CFTC were themselves fighting in court over election contracts.
The timing of Monday’s order was no accident either. In a July 24 letter, the CFTC told Menendez that absent a ruling or stay by close of business Tuesday, it would treat its motion as constructively denied and seek interim relief from the Eighth Circuit — and Kalshi and Polymarket said they would do the same. The order landed a day before that deadline, keeping the dispute in district court rather than escalating it on an emergency basis.
Minnesota Attorney General Keith Ellison signaled the state is not backing down, saying Minnesota “respectfully disagree[s]” with the court’s reading of the status quo — one he argued “allows predatory gambling apps to proliferate.” The state’s memorandum contended the platforms could satisfy federal requirements while still restricting what they offer within Minnesota’s borders, a framing that maps closely onto the sports-adjacent contracts the judge herself flagged as potentially outside the CEA’s swap definition.
Why this matters beyond Minnesota
The federal regulatory machinery around event contracts is actively being rebuilt in parallel. The CFTC published an advisory on self-certification of event contract series just last week, tightening how designated contract markets bring new event contracts to market — and it has separately shown it will intervene directly in exchange rule changes, staying a KalshiEX rule change and invoking emergency authority earlier this month to order fulfillment of pending trades.
Put those pieces together and the shape of the endgame becomes visible. Federal courts are converging on the view that CFTC-regulated venues cannot be criminalized by states, while the CFTC simultaneously tightens its own gatekeeping over what those venues may list. If the merits rulings follow the preliminary logic in Menendez’s order, the contracts most likely to survive everywhere are the ones with genuine economic stakes — elections, commodities, geopolitical events — while pop-culture markets become the bargaining chip between federal preemption and state gambling law.
For the prediction market sector, which spent 2026 expanding into brokerage apps and retail distribution deals, that is a livable outcome. It is also, notably, exactly the split neither side asked for. The next test comes at the merits stage in Minnesota — and in whichever of the parallel state cases produces the first appellate ruling, because a circuit split on the swap question would put this issue on a path to the Supreme Court.
