Kalshi, a prominent derivatives exchange, is currently facing a lawsuit that accuses the company of engaging in illegal sports gambling and market manipulation. 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. It further 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's Defense
Kalshi disputes these accusations. In a public statement, founder Luana Lopes Lara asserted that the company operates solely 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 function. According to Lara, liquidity on Kalshi is provided peer-to-peer, and any participant has the ability to supply it.
Industry Context and Regulatory Landscape
This dispute highlights a broader issue within the industry concerning the regulation of prediction markets. A similar situation previously occurred with Polymarket, which in 2022 agreed to cease serving U.S. users following a settlement with the CFTC. Earlier this year, Polymarket made a return to the domestic market by acquiring an exchange and clearinghouse.
Rapid Expansion and Increased Visibility
The lawsuit arrives during a period of significant growth for Kalshi. The company recently completed a $1 billion funding round, valuing it at $11 billion, which followed a $300 million round just two months prior. Trading volume has seen a sharp increase, jumping from $300 million last year to an annualized $50 billion. This surge in volume has been partly driven by growing interest in political prediction markets.
Competitor Polymarket is also undergoing scaling efforts and is reportedly targeting a valuation of up to $15 billion in its next funding round. Industry analysts suggest that investor demand for event-based trading products is rapidly rising across the sector.
Kalshi has continued to enhance its infrastructure amidst this expansion. The platform recently integrated Coinbase for USDC custody and settlement, which allows Coinbase to manage the flow of stablecoin assets on the exchange.