Polymarket faces first state-level cease-and-desist from Tennessee, weeks after US relaunch: report

Tennessee's sports betting regulator has issued cease-and-desist letters to three major prediction market platforms, escalating the nationwide clash between state gambling authorities and federally regulated events contracts exchanges.

The Tennessee Sports Wagering Council sent letters dated Jan. 9 to Kalshi, Polymarket, and Crypto.com's North American Derivatives Exchange, according to copies of the documents published by gaming attorney Daniel Wallach and reviewed by The Block. The letters demand that all three platforms immediately cease offering sports event contracts to Tennessee customers, void all pending contracts entered into by Tennessee residents, and refund all customer deposits by January 31, 2026.

"The sports events contracts offered on Polymarket's exchange are not compliant with these [Tennessee state consumer] protections (and many others) and are an immediate and significant threat to the public interest of Tennessee," SWC Executive Director Mary Beth Thomas wrote in the letter to Polymarket. The letters to Kalshi and Crypto.com contained nearly identical language.

All three platforms are registered with the Commodity Futures Trading Commission as designated contract markets, a federal designation that allows them to offer event-based derivatives contracts nationwide. The platforms have argued that CFTC oversight preempts state gambling regulations, a position that has yielded mixed results in federal courts.

Expand Chart

As the legal battles continue, volume on Kalshi and Polymarket continues to grow. Polymarket re-entered the US following its acquisition of derivatives exchange and clearinghouse QCX for $112 million over the summer, and began opening its US app to waitlisted users in December, though the platform has not publicly re-launched. 

The Tennessee action appears to be the first publicly disclosed state-level cease-and-desist targeting Polymarket. Polymarket currently offers only sports event contracts to US users.

Tennessee's letters threaten a range of penalties for non-compliance. Under the Tennessee Sports Gaming Act, the SWC can impose fines of $10,000 for a first offense, $15,000 for a second offense, and $25,000 for subsequent violations against any person offering wagers without a state license. The regulator also warned it would seek injunctive relief in state court.

More significantly, the letters cite Tennessee's criminal gambling statutes, which classify gambling promotion as a Class B misdemeanor and aggravated gambling promotion as a Class E felony. Thomas wrote that failure to comply would result in a referral to law enforcement for further investigation.

Tennessee had been signaling opposition to prediction markets for months before taking enforcement action. In April 2025, the SWC submitted a letter to the CFTC ahead of the agency's prediction markets roundtable, urging regulators to prohibit sports event contracts. Thomas warned that CFTC-regulated platforms were offering what Tennessee considers illegal wagers without complying with state consumer protections, including age restrictions, responsible gaming requirements, and anti-money laundering controls. Thomas later told the Tennessee State Funding Board in November that prediction markets posed a threat to state-regulated sportsbooks and the tax revenue they generate for education funding.

The letters were copied to Tennessee Attorney General Jonathan Skrmetti, who joined 37 other state attorneys general in an amicus brief supporting Maryland in its ongoing lawsuit against Kalshi last month. Skrmetti had previously signed onto a June 2025 amicus brief with 33 other attorneys general challenging a federal court ruling favorable to Kalshi.

A Kalshi spokesperson told The Block that the company has filed a suit in federal court in order to block Tennessee's "unlawful attempt" to stop prediction markets in the state. "As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it’s subject to exclusive federal jurisdiction. It is very different from what state-regulated sportsbooks and casinos offer their customers," the spokesperson said. 

Polymarket and Crypto.com did not immediately respond to requests for comment from The Block. Wallach wrote on X that "lawsuits are imminent," suggesting the platforms may follow their established playbook of challenging state enforcement in federal court.

Updated at 5:24 p.m. ET with Kalshi's statement.