Kalshi, one of the fastest-growing players in the prediction-market sector, is facing a proposed class action that accuses the company of operating an unlicensed sports gambling service and manipulating market conditions.
Key Takeaways
Kalshi is facing a lawsuit accusing it of illegal sports gambling and market manipulation.
The company rejects the claims, saying it is a CFTC-regulated derivatives exchange and that the lawsuit is competitor-driven.
The dispute comes during rapid growth, including a $1B raise, soaring trading volume, and a new Coinbase USDC custody partnership.
The legal filing comes at a time when the firm is expanding rapidly and securing large funding rounds.
The complaint alleges that Kalshi’s platform functions as a sportsbook without holding state gaming licenses and claims that customers are disadvantaged because market makers — described in the suit as effectively “the House” — sit on the opposite side of trades. Plaintiffs also argue that the company advertises its service as “legal sports betting,” which they say misleads users.
Kalshi disputes the accusations. In a public statement, founder Luana Lopes Lara said the company operates only as a CFTC-regulated derivatives exchange, not as a gambling platform. She also stated that the lawsuit was encouraged by a competitor and misrepresents how event-driven markets work. According to Lara, liquidity on Kalshi is provided peer-to-peer, and any participant can supply it.
The dispute highlights a much broader issue in the industry: how prediction markets should be regulated. A similar situation previously occurred at Polymarket, which in 2022 agreed to stop serving U.S. users following a settlement with the CFTC. Earlier this year, Polymarket returned to the domestic market by purchasing an exchange and clearinghouse.
Rapid expansion raises visibility
The lawsuit arrives during a period of strong growth for Kalshi. The company recently raised $1 billion, valuing it at $11 billion, following a $300 million round two months earlier. Trading volume has increased sharply, jumping from $300 million last year to $50 billion annualized, driven partly by interest in political prediction markets.
Competitor Polymarket is also scaling and is reportedly targeting a valuation of up to $15 billion in its next funding round. Analysts say investor demand for event-based trading products is rising quickly across the sector.
Kalshi has continued adding infrastructure amid the expansion. The platform recently integrated Coinbase for USDC custody and settlement, allowing Coinbase to manage the flow of stablecoin assets on the exchange.
