The $25,000-Per-Violation Ultimatum
Tennessee regulators have pierced the “event contract” shield used by prediction markets, ordering Crypto.com, Polymarket, and Kalshi to immediately cease sports-related offerings in the state. In cease-and-desist letters issued January 9 and published by attorney Daniel Wallach, the Tennessee Sports Wagering Council (SWC) rejected the platforms’ federal derivatives defense, classifying their products as unlicensed gambling.
The mandate is absolute: cease operations, void all Tennessee-based contracts, and refund user deposits by January 31, 2026. Failure to comply triggers civil penalties up to $25,000 per violation and potential criminal referrals. The SWC explicitly stated that packaging sports wagers as “event contracts” does not exempt them from the Tennessee Sports Gaming Act.
State vs. Federal Friction
This enforcement action marks the second major strike in a developing state-level blockade against CFTC-regulated prediction markets. It follows a nearly identical move by Connecticut in December 2025, signaling a coordinated effort by state regulators to protect tax revenues generated by licensed incumbents like DraftKings and FanDuel.
The sports events contracts offered… are Wagers under the Act and are being offered illegally in violation of Tennessee law.
Kalshi and Polymarket argue their markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). However, Tennessee officials contend that irrespective of federal status, any product risking money on sporting outcomes requires a state license. The platforms currently pay no wagering privilege tax in Tennessee.
Market Reaction: CRO Shrugs
Despite the regulatory heat, Cronos (CRO) remained unfazed, trading up 4.7% at $0.10 over the last 24 hours. The market appears to be pricing this as a localized jurisdictional dispute rather than an existential threat to Crypto.com’s broader exchange business. Volume remains healthy at $8.8M.
For Kalshi and Polymarket, the stakes are higher. If this precedent spreads to high-volume states like New York or California, it could severely fracture liquidity in their sports prediction pools, forcing a retreat to purely political or economic markets.
