Crypto prediction firm sues Connecticut over crackdown

TLDR

Sports prediction platform Underdog has filed a federal lawsuit against Connecticut, challenging the state's crackdown on crypto-style sports event markets as illegal gambling.

1. Underdog is asking a federal court to block Connecticuts cease-and-desist orders against its sports prediction contracts and similar platforms.
2. The firm argues federal CFTC rules for prediction markets preempt state gambling law, a question already producing conflicting rulings in other states.
3. For crypto users, the case could shape where on-chain and regulated prediction markets can legally operate and whether a nationwide standard eventually emerges.

Deep Dive

1. What Connecticut Did And Why Underdog Is Suing

Connecticuts Department of Consumer Protection recently sent cease-and-desist orders to nine prediction platforms, including Underdog, Polymarket, Coinbase, Crypto.com, and Robinhood, telling them to stop offering sports event contracts without state gambling licenses. The state says these contracts are sports betting that only licensed sportsbooks can legally offer, citing its gambling statutes and licensing regime.

In response, Underdog filed a federal lawsuit seeking declaratory and injunctive relief to stop the crackdown and keep operating in Connecticut. The complaint claims Underdogs contracts trade on a federally regulated designated contract market under the Commodity Futures Trading Commission, and that the CFTC has exclusive jurisdiction, so Connecticuts gambling enforcement is preempted by the Commodity Exchange Act, according to reporting from The Block and crypto.news.

2. A Wider Battle Over Prediction Markets And Gambling Law

Connecticut is not alone. Underdog has already sued Ohio, Massachusetts, Wisconsin, New Mexico, and Washington over similar actions, making it the sixth jurisdiction where it is challenging state enforcement. Other operators such as Kalshi and Novig have brought their own suits, and courts have split: a New York judge denied Kalshi an injunction, while the Third Circuit backed interim protection in New Jersey, and the Ninth Circuit let Nevada apply its gaming rules, with one ruling noting the CFTC is not a national gambling regulator.

Meanwhile, sector volumes are large. Prediction markets hit about $50.59 billion in July trading, with Kalshi around $37.7 billion and Polymarket $12.9 billion, according to crypto.news. That scale makes these platforms systemically relevant for traders who use them alongside spot crypto and DeFi.

3. Why Crypto And On-Chain Users Should Care

Many modern prediction venues either settle in crypto, use tokenized contracts, or run entirely on-chain, so treating their markets as gambling rather than federally regulated derivatives directly affects access, geoblocking, and compliance costs. With dozens of prediction market cases active in over twenty states, and conflicting circuit decisions, the legal question is already moving toward the US Supreme Court for a unified ruling, as highlighted by recent coverage on state and federal disputes.

Conclusion

Underdogs lawsuit against Connecticut is part of a much larger fight over whether prediction markets, including crypto-linked and on-chain venues, are regulated trading platforms or simply unlicensed gambling. The outcome, likely decided only after higher court review, will shape which states these markets can serve, how they must register, and how easily crypto users can legally trade event outcomes alongside traditional tokens.