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Kalshi’s Strongest Legal Defense Leg Rests on Less Than 1% of Its Business: A Comprehensive Guide

By jili tutorial · September 10, 2026

Kalshi’s Strongest Legal Defense Leg Rests on Less Than 1% of Its Business: A Comprehensive Guide

Kalshi, the leading U.S.-based prediction market platform, finds itself at the center of a legal firestorm. Its defense against state gambling regulators rests on a single, sweeping claim: every contract it lists—whether a Yankees game outcome or a Federal Reserve interest rate decision—qualifies as a swap under the Commodity Exchange Act (CEA). If that argument holds, the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction, and roughly two dozen states have no authority to intervene.

Two federal appeals courts have now split on whether this reasoning applies to sports event contracts. The Third Circuit in April 2025 ruled in Kalshi’s favor (allowing trading in New Jersey), while the Ninth Circuit on August 28, 2025, went the other way, holding that sports event contracts are not swaps and that federal law does not preempt state gambling regulation. The U.S. Supreme Court now appears the next logical step.

But the legal debate has been long on rhetoric and short on hard numbers. To ground the dispute in reality, Gambling Insider rebuilt Kalshi’s entire trade record from the exchange’s public data on Dune Analytics. The resulting picture is sharper than either side has let on—and it reveals a crucial fact: the contracts with the strongest claim to being swaps are a vanishingly small part of Kalshi’s business.

What Is a Swap Under the Commodity Exchange Act?

The CEA defines a swap as a contract that pays out based on an event “associated with a potential financial, economic, or commercial consequence.” The key word is “associated.” How loosely or tightly that association is interpreted determines the entire legal fight.

The Ninth Circuit’s decision in KalshiEX, LLC v. Assad drew a sharp line between an event and its outcome. For a contract to be a swap, the payout must be tied to a variable that directly affects the parties’ existing exposures—like an interest rate, a commodity price index, or a government funding deadline. Sports outcomes, the court held, lack that direct connection.

Which Contracts Have the Strongest Swap Claim?

Under the narrow reading, the contracts that pass the test comfortably are those tied to:

These are the contracts that answer to real-world hedging needs—a bank wanting to hedge rate risk, a corporation needing to hedge commodity price exposure, a fund managing inflation risk.

The Data: What Customers Actually Trade on Kalshi

Rebuilding Kalshi’s Trade Record

Gambling Insider accessed Kalshi’s full trade data via the kalshi.trade_report table on Dune Analytics. For August 2025, the exchange processed roughly $11.4 billion in actual customer stakes. This figure is critical because Kalshi itself reports volume using a different method that dramatically inflates the numbers.

Understanding Volume Measurement: Face Value vs. Actual Stake

Kalshi contracts have a face value of $1—if the event happens, the buyer receives $1; if not, the contract expires worthless. However, traders often buy contracts for pennies on the dollar. For example, a contract that costs $0.02 means the trader has only $0.02 at risk.

The difference is not minor. Across the entire exchange in August, the average contract cleared at 28.6 cents, so the face-value method overstates volume by a factor of 3.5.

Why does this matter? Kalshi’s own headline numbers—$40 billion in August—make the exchange appear larger and more diversified than it actually is. When you strip out the inflation, the real picture emerges: $11.4 billion in stakes, with an annualized run rate of about $137 billion. That still rivals the entire U.S. legal sportsbook handle ($166.9 billion in 2025, per the American Gaming Association), but the composition is far more lopsided.

The Composition Breakdown: Where the Money Flows

Sports Markets: 61% of Staked Money

In August 2025, at least 61% of every dollar customers staked went to sporting events.

CategoryStaked Amount (August)Share of Total
Single-game sports markets$5.6 billion49%
Multi-leg combos (parlays)$1.1 billion~10%
Smaller leagues (cricket, Japanese/Korean baseball, etc.)~$0.4 billion~2%
Total sports$6.95 billion~61%

Sports single-game markets alone were the largest category. Adding multi-leg combos and fringe leagues pushes sports to roughly three-fifths of the exchange.

Short-Dated Crypto and Commodity Contracts: 34% of Staked Money

The second-largest slice, roughly $3.9 billion (34%), came from short-dated crypto and commodity price contracts. The standout product: bitcoin priced in 15-minute windows, which alone generated $2.7 billion in August.

These contracts resolve every quarter hour based on where a coin price lands. This is problematic for the swap argument because they are downstream of the spot market they reference—they report the price rather than discovering it. The Ninth Circuit’s logic suggests such contracts sit on the gambling side of the line, as they serve no hedging function for a retail trader who holds no underlying exposure.

The Markets with the Strongest Swap Claim: 0.6%

Here is the most striking finding. The contracts that pass the Ninth Circuit’s test with ease—interest rates, inflation, index levels, government funding—drew only $64.3 million in August 2025, or 0.6% of the exchange’s total staked money.

MonthMacro/Political Volume% of Exchange
January 2026$95.8 million~2.5% (peak)
July 2026~$21.2 million (Fed decision busiest month)0.45% (lowest)
August 2026$64.3 million0.6%

Is This Just Seasonality? No.

One might argue that August had no election and that macro trading is lumpy. But the data tells a different story:

The exchange’s explosive growth came overwhelmingly from sports and short-dated crypto/commodity contracts. The part of the book with the least contested claim to being a swap is not merely small—it is shrinking.

Debunking the Parlay Myth: Measurement Tricks and Real Exposure

How Kalshi’s Reporting Inflates Parlay Volume

Multi-leg “combo” bets (parlays) have become a symbol of Kalshi’s drift into sports betting. On the face-value method, combos look enormous—about $17.8 billion in August (44% of volume). But on the money-actually-traded basis, combos were just $1.1 billion (about 10%).

The reason: combo contracts are typically penny bets. Most trade below 2 cents per contract. Counting them at $1 face value inflates their volume roughly 16-fold.

Both numbers are real, but only one describes customer money. The honest read is not that parlays are half of Kalshi; it is that parlays are a tenth of the money and a very expensive tenth—the exchange earns fees on volume, so inflated headline numbers benefit marketing but distort the true risk profile.

The Ninth Circuit’s decision turned partly on whether Kalshi’s contracts perform a genuine risk-transfer function. Parlays, which combine multiple sports outcomes, are structurally identical to sportsbook parlay wagers. They disconnect from any underlying exposure and exist purely for speculative entertainment. That makes them the hardest case for the swap argument—and yet they represent a significant (if measured correctly) chunk of actual trading.

The Appellate Split and Path to the Supreme Court

Third Circuit (April 2025): Kalshi Wins in New Jersey

The divided Third Circuit read the CEA’s “associated” language loosely. Sports outcomes, the majority reasoned, plainly carry economic consequences for sponsors, advertisers, broadcasters, franchises, and communities. An association with economic consequence is all the statute requires. The court affirmed an injunction allowing Kalshi to continue trading in New Jersey.

Ninth Circuit (August 28, 2025): Kalshi Loses in California

The Ninth Circuit went the other way, holding that:

The court explicitly warned that a broader reading would sweep in “bingo games, ping-pong tournaments” and undermine state gambling laws.

What the Split Means

With the two circuits in direct conflict, the issue is now ripe for the U.S. Supreme Court. As Mike Roselli, Chief Regulatory Officer at 365Prediction, told Gambling Insider: “With the appellate courts now split after the Ninth Circuit’s recent decision, at this point Supreme Court review feels like a matter of when, not if.”

Implications for the Industry and Regulators

What the Data Reveals About Kalshi’s Business

The trade record does not settle the law—only the courts can do that—but it does clarify the ground on which the legal fight is being fought. Kalshi’s defense is not that its financial markets justify its sports markets. It is broader and simpler: every contract, no matter the event, is a swap. But the data shows that the contracts with the strongest swap claim are an afterthought (0.6%), while 95 cents of every staked dollar sits in contracts whose swap status is fiercely contested.

The exchange’s annualized run rate ($137 billion) now rivals the entire U.S. legal sportsbook industry ($166.9 billion in 2025). This is no longer a niche product—it is a public policy question.

What Regulators Should Watch

A Potential Path Forward

One could argue that the market is self-correcting: if the Ninth Circuit’s view prevails, Kalshi would need to either cease sports trading or obtain state licenses. Alternatively, if the Supreme Court adopts the Third Circuit’s broad reading, it could open the door for licensed exchanges to offer sports betting under federal authority, potentially reshaping the entire U.S. gambling landscape.

Key Takeaways

  1. Kalshi’s strongest legal argument (swap status) rests on contracts that represent less than 1% of its actual stakes. The macro/political markets that comfortably fit the swap definition were just 0.6% in August and have been declining as a share of the exchange.
  2. The measurement method matters enormously. Kalshi’s face-value reporting inflates volume by 3.5x overall and by 16x for parlays. Actual customer stakes in August were $11.4 billion, not $40 billion.
  3. Sports and short-dated crypto/commodity contracts dominate. Together they account for 95% of staked money. Both categories have weak claims to being swaps under the Ninth Circuit’s reasoning.
  4. The appellate split makes Supreme Court review likely. The Third and Ninth Circuits are in direct conflict, and the stakes—both legal and commercial—are enormous.
  5. The data reveals a gap between legal rhetoric and market reality. Kalshi’s growth came from the very contracts its swap defense is least suited to cover.