Polymarket Trader Loses $2.36M Despite Near 50% Win Rate

Tennessee’s Sports Wagering Council has issued cease-and-desist letters to prediction market platforms Polymarket, Kalshi, and Crypto.com, marking the first publicly known state-level action against Polymarket since its relaunch in the U.S. The regulator ordered the platforms to stop offering sports event contracts to Tennessee residents and to void pending contracts by January 31, 2026, or face penalties according to regulatory documents.

The platforms are registered with the Commodity Futures Trading Commission, which allows them to offer event-based derivatives contracts. However, Tennessee argues that these contracts are not compliant with state consumer protections and pose a threat to public interest according to the regulator.

The move comes amid growing scrutiny of prediction markets. A high-profile bet on the removal of Venezuelan President Nicolás Maduro, placed just hours before the event, has raised concerns about the potential for insider knowledge and manipulation. This led to a new legislative proposal, the Public Integrity in Financial Prediction Markets Act, introduced by Rep. Ritchie Torres and others, which seeks to prohibit government officials from participating in such markets as reported.

Why Did This Happen?

Tennessee has been vocal in its opposition to prediction markets for months. In April 2025, the Sports Wagering Council submitted a letter to the CFTC urging it to prohibit sports event contracts, arguing that prediction markets threaten state-regulated sports betting and the tax revenue it generates according to regulatory filings.

The council warned that CFTC-regulated platforms like Polymarket are offering what Tennessee considers illegal wagers without complying with state consumer protections, including age restrictions and anti-money laundering controls as stated.

How Did Markets React?

Despite the regulatory pressures, Polymarket’s trading volume has continued to grow. The platform re-entered the U.S. market in late November after acquiring derivatives exchange QCX for $112 million and began opening its app to waitlisted users in December according to market reports.

However, the Tennessee cease-and-desist order introduces significant uncertainty for Polymarket and other prediction market platforms. The regulator can impose fines ranging from $10,000 to $25,000 for non-compliance and even pursue criminal charges, according to the letters.

What Are Analysts Watching Next?

The legal battles between prediction market platforms and state regulators are expected to intensify. Tennessee’s letters were copied to Attorney General Jonathan Skrmetti, who has previously joined other attorneys general in challenging federal court rulings favorable to Kalshi as documented.

The Tennessee action could set a precedent for other states to follow. It remains to be seen whether Polymarket and Kalshi will respond by challenging the cease-and-desist order in federal court, as has been their pattern with other regulatory challenges according to industry analysis.

Investors are also watching for potential legislative developments, including the proposed Public Integrity in Financial Prediction Markets Act. If passed, it would prevent federal officials and their staff from participating in prediction markets, raising new compliance concerns for government employees as reported.

The regulatory uncertainty highlights the broader debate over the role of prediction markets in the U.S. financial system. While some argue that these platforms promote transparency and efficient information transmission, others warn of the risks of insider trading and self-dealing according to analysis.

As the legal and regulatory landscape evolves, market participants are advised to closely monitor developments in both federal and state courts, as well as potential legislative changes that could impact the structure and function of prediction markets in the U.S. according to industry observers.