Jul 29, 2025 Event-driven contracts—otherwise known as binary options—first came under CFTC jurisdiction when HedgeStreet, now more commonly known as Nadex, was approved as a Designated Contract Market (DCM) in February 2004. While the initial vision was bold, binary options struggled to gain widespread traction for many years. That changed in 2020 when Kalshi was approved as a DCM just as the COVID-19 pandemic was spreading globally. Kalshi began offering event-driven binary contracts, giving market participants a novel way to express views on real-world outcomes. The platform gained significant attention during the 2024 U.S. presidential election, when users could trade contracts based on which party would win. Since then, Kalshi’s offerings have expanded and its visibility has grown, positioning event contracts as a rising asset class within the regulated futures space. Following the 2024 election, interest in binary options surged—fueled in part by Robinhood’s introduction of event-driven contracts tied to the Super Bowl. The Trump administration’s return brought a regulatory climate seen as more favorable to financial innovation. Several Biden-era regulatory initiatives have been paused or reversed, and efforts to establish clearer crypto regulations are underway. Against this backdrop, interest in event contracts has accelerated across FCMs, IBs, CTAs, and CPOs. Turnkey Trading Partners has observed a sharp uptick in inquiries from Commodity Futures Trade Commission (CFTC) registrants exploring ways to offer binary options or event contracts to their customers. Kalshi and Robinhood may have opened the door, but with favorable regulatory tailwinds, others are now looking to participate in what many believe could become a multi-billion-dollar financial product category. So what’s next? How can your CFTC-registered firm get involved? What are the regulatory risks and legal developments shaping the future of this market? Kalshi’s rapid rise, regulatory clashes, and ultimate survival—at least for now—signal something more than legal drama: a new asset class with real commercial potential. Whether you’re an Introducing Broker looking to expand your product menu or a proprietary group considering platform development, these legal battles may be shaping the rules of a multi-billion-dollar market in the making. From Fringe to Front Page: Kalshi’s Push to Mainstream Event Markets KalshiEx LLC, a CFTC registered DCM backed by Silicon Valley investors, has set out to redefine how markets can forecast actual outcomes. Its “event contracts” let participants trade on everything from the number of Atlantic hurricanes and China’s GDP growth to U.S. government shutdowns, Senate confirmations, and even Oscars winners. These contracts sit at the intersection of fintech innovation and derivatives markets, representing an emerging asset class that attempts to broaden the scope of tradable instruments—though their long-term viability and regulatory acceptance remain uncertain. Event contracts are designed to turn uncertain real-world outcomes into tradable instruments that can be used to manage risk, improve planning, and gather information. For example: A travel company that relies heavily on coastal destinations risks lost bookings and cancellations during hurricane season. To hedge this risk, the company could buy hurricane event contracts that pay out if the number of named hurricanes in the Atlantic exceeds a certain threshold. If the contract pays off when there are more than 10 hurricanes and that threshold is met, the payout helps offset revenue lost from canceled trips and reduced tourism. This hedge helps stabilize cash flow and reduce uncertainty from weather disruptions. By aggregating the views of many participants, these markets also produce real-time probability signals, essentially “crowdsourced forecasts,” that can be more accurate and actionable than traditional predictions. In this way, event contracts create both risk management tools and valuable information that helps businesses and investors make better decisions. Despite their growing acceptance as risk management tools, certain event contracts — particularly those tied to political outcomes — have become lightning rods for regulatory scrutiny. The most prominent example is Kalshi’s “Congressional Control Contracts,” which triggered a significant legal confrontation with the CFTC. The CFTC Showdown: Are Election Markets “Gaming”? At the center of Kalshi’s clash with federal regulators was its “Congressional Control Contracts,” a series of binary markets that allowed traders to stake money on which party would control the House or Senate after the 2024 elections. In 2023, the CFTC prohibited these contracts, invoking the Commodity Exchange Act’s (CEA) “special rule” that blocks derivatives involving activities deemed “contrary to the public interest,” including “gaming” or any activity unlawful under state or federal law. One Commissioner Dissents: Process vs. Policy Notably, one CFTC Commissioner dissented from this prohibition. The dissent argued that the Commission failed to follow the proper process Congress mandated a public notice-and-comment rulemaking before banning the contracts. The Commissioner emphasized that the statutory language does not explicitly prohibit event contracts based on Congressional control or elections and criticized the Commission’s expansive interpretation of “gaming.” The dissent called for clearer regulatory guidance through formal rulemaking rather than ad hoc enforcement and warned that the Commission’s approach undermined market innovation and regulatory transparency. The CFTC argued that election contracts fall squarely into this category. “Taking a position in the Congressional Control Contracts would be staking something of value upon the outcome of a contest of others,” the agency wrote, equating these trades to “betting or wagering on elections,” which are illegal in many states. The Commission also warned of risks to election integrity, claiming such contracts could “create monetary incentives for voters to support particular candidates or incentivize the spread of misinformation.” Kalshi fired back, challenging the CFTC’s statutory interpretation as arbitrary and overreaching. In September 2024, the U.S. District Court for the District of Columbia sided with Kalshi, ruling that “gaming” as used in the CEA “must refer to the act of playing a game — and elections are not games.” The court also concluded that elections, while politically charged, are not “unlawful activity” under state law, and thus do not trigger the special rule. “The Court’s only task is to determine what Congress did, not what it could do or should do,” Judge Jia Cobb wrote, striking down the CFTC’s prohibition as beyond its statutory authority. When the CFTC sought an emergency stay pending appeal, the D.C. Circuit Court of Appeals declined. “The Commission has failed at this time to demonstrate that it or the public will be irreparably injured absent a stay,” Judge Patricia Millett wrote for the panel, noting that the harms cited by the CFTC were “theoretical” rather than “both certain and great.” The ruling allowed Kalshi’s contracts to trade briefly before further litigation resumed. State Regulators Push Back: The New Jersey Case While Kalshi’s federal battle grabbed headlines, a separate confrontation with state gaming regulators could prove just as consequential. In early 2025, the New Jersey Division of Gaming Enforcement issued a cease-and-desist order against Kalshi’s sports-related event contracts, arguing they amounted to unlicensed sports betting under state law. Kalshi responded by suing in the U.S. District Court for the District of New Jersey, asserting that its contracts — certified for trading on a CFTC-regulated platform — are governed exclusively by federal law. In April, Judge Edward Kiel granted Kalshi a preliminary injunction, ruling that “Kalshi’s event contracts fall within the CFTC’s exclusive jurisdiction” and that the CEA preempts New Jersey’s Sports Wagering Act. New Jersey is currently the only state directly pursuing legal action against Kalshi, while 34 other states — led by Ohio and Nevada — have joined the case via an amicus brief in the Third Circuit. This ruling has since been appealed to the Third Circuit Court of Appeals, where a coalition of 34 state attorneys general (AGs) — led by Ohio and Nevada — is fighting to preserve state oversight. In a forceful amicus brief, the AGs argued: “Kalshi’s products are indistinguishable from sports betting. From the user’s perspective, the platform enables speculation on sports outcomes in ways that mirror traditional betting, and its own marketing has used terms like ‘bet’ and ‘sports betting’ to describe its offerings.” The AGs warned that if the Third Circuit upholds the injunction, it would create a loophole allowing companies to bypass state gambling laws by simply structuring wagers as CFTC-regulated event contracts. “Federal commodity regulation is not a substitute for state oversight,” the brief stated, emphasizing that states have historically been responsible for licensing, consumer protection, and responsible gambling measures. Tribal Lawsuit: California Tribes Enter the Fight In July 2025, three California tribes — the Blue Lake Rancheria, Chicken Ranch Rancheria of Me-Wuk Indians, and Picayune Rancheria of the Chukchansi Indians — filed a federal lawsuit against Kalshi and Robinhood. The tribes allege that the companies are illegally offering sports event contracts on tribal lands in violation of the Indian Gaming Regulatory Act (IGRA). Filed in the Northern District of California, the complaint seeks both preliminary and permanent injunctions, claiming the platforms’ sports contracts function as unregulated Class III gaming and violate tribal-state gaming compacts. This marks the first legal action by tribal governments against Kalshi, adding another layer of complexity to the broader regulatory and legal challenges the company faces. Kalshi’s legal challenges extend beyond New Jersey and California. The company has filed lawsuits in Nevada and Maryland to counter cease-and-desist orders from state regulators, asserting that its CFTC oversight exempts it from state gambling laws. At the same time, five separate lawsuits have been filed against Kalshi, Robinhood, Webull, and Susquehanna International Group on behalf of residents of Kentucky, Ohio, Massachusetts, Illinois, and South Carolina, seeking to recover alleged illegal gambling losses. What makes the tribal lawsuit unique is that it invokes federal laws — the Indian Gaming Regulatory Act and the Wire Act — which Kalshi cannot sidestep by relying on CFTC preemption arguments. The tribes have even cited Kalshi’s own marketing, which promoted itself as “The First Nationwide Legal Sports Betting Platform” and touted “Sports Betting Legal in all 50 States on Kalshi,” undermining the platform’s claim that these are purely financial futures contracts. Why It Matters: The Future of Event Markets The legal outcomes in Washington, New Jersey, and now California could reshape how prediction markets operate across the U.S. If Kalshi prevails, CFTC registration might become a backdoor for companies to offer election and sports wagers nationwide, sidestepping state licensing regimes. This would give exchanges like Kalshi a significant competitive edge over traditional sports books and could open the door to more politically sensitive markets. For regulators, the stakes are high. “Gambling regulation is a core state power,” the AGs noted, urging courts to avoid “displacing that authority without an unmistakable mandate from Congress.” Meanwhile, the CFTC’s legal challenge over Kalshi’s election contracts has been formally dropped, leaving the district court’s ruling intact and potentially cementing a precedent for election‑based event contracts under federal law. What Comes Next The ongoing disputes raise a critical question: where do event contracts belong within the regulatory landscape? Proponents argue these markets improve price discovery and provide innovative risk-hedging tools, enabling traders to speculate on outcomes such as recession odds, interest rate moves, unemployment data, and political events. Critics, including state regulators and the gaming industry, counter that these products are thinly veiled attempts to evade state licensing requirements, consumer protections, and tax obligations. Turnkey Trading Partners has examined this tension, emphasizing how event contracts are becoming a disruptive force that blurs the boundaries between financial instruments and gambling products. The outcomes of Kalshi’s cases could set influential precedents, determining whether other platforms can operate under federal oversight while sidestepping state gaming laws. The Third Circuit is currently reviewing New Jersey’s appeal of the district court’s April 2025 preliminary injunction, which held that Kalshi’s event contracts fall under the CFTC’s exclusive jurisdiction. The appellate ruling — whenever it comes — will influence how similar platforms navigate the overlap between federal oversight and state gambling laws. Regulators, policymakers, and market participants are watching closely, as these decisions will shape how innovation is balanced against concerns over gambling, manipulation, and public trust. For now, Kalshi remains the test case: Are event markets the next evolution of risk management or simply a modern wrapper for traditional betting? The outcomes of its legal battles will not only determine Kalshi’s future but also set critical precedents for how event contracts are regulated and perceived. These cases will decide whether event contracts are treated as innovative financial instruments that enhance price discovery and risk hedging, or whether they fall under the umbrella of gambling products subject to state gaming laws. A favorable outcome could legitimize event markets as part of mainstream finance, while an unfavorable ruling would signal that their speculative nature places them firmly outside that boundary. Either way, the courts’ decisions will shape the future of this rapidly evolving industry. Turnkey Supports Designated Contract Market Applications DCM registration is a demanding process, involving CFTC reviews, strict standards for market surveillance, and detailed compliance requirements. Without the right approach, these hurdles can slow down or even block approval. Turnkey Trading Partners helps firms navigate each step of the CFTC Designated Contract Market (DCM) application process by building the right compliance structure and addressing CFTC expectations from the start. We also work with some of the most experienced CFTC law firms in the U.S. to give clients the guidance they need for a smooth path to approval. By solving these challenges early, we help platforms move from concept to launch with fewer delays and stronger oversight.