Polymarket, the crypto-enabled prediction market, has been hit with a major nationwide class action lawsuit in the U.S. District Court for the Southern District of New York (SDNY).
The lawsuit, filed by plaintiff Lorenzo Miro on behalf of a proposed nationwide class, alleges that Polymarket is operating an “illegal online sports gambling platform.”
The filing argues that while the platform is marketed as a sophisticated “prediction market” for price discovery, it is, in reality, an unlicensed sports betting enterprise that violates various state laws.
Prediction Markets are Booming
The legal challenge comes at a time when prediction markets have surged into the mainstream.
These platforms have become so popular that total trading volume across leaders like Polymarket and Kalshi surpassed $17 billion in January 2026 alone.
The sector’s growth is being fueled by high-profile participants and significant payouts.
Ethereum co-founder Vitalik Buterin recently shared a strategy that netted him over $70,000 by betting against irrational market predictions.
This massive influx of capital has put a target on the industry, as regulators and trial lawyers look to reclassify these “event contracts” as taxable, regulated wagers.
Critical Turning Point
While competitors like Kalshi have long operated under the oversight of the Commodity Futures Trading Commission (CFTC), Polymarket only recently re-entered the U.S. market in late 2025 following a $2 billion investment from Intercontinental Exchange (NYSE:ICE), the parent company of the New York Stock Exchange.
The SDNY lawsuit aims to capitalize on a string of recent regulatory setbacks for the platform.
Last week, a Nevada judge issued a temporary restraining order (TRO) forcing Polymarket to halt operations in the state, finding that its event contracts constitute “unlicensed wagering.”
In January, the Tennessee Sports Wagering Council ordered Polymarket to stop offering sports contracts, void existing trades, and refund users by January 31.
Polymarket did not immediately return Benzinga’s request for comment regarding the SDNY filing.
In previous statements related to state-level actions, the company has maintained that it is a federally regulated product and that it intends to challenge orders that it believes are preempted by the Commodity Exchange Act (CEA).
Who Could Benefit?
If the lawsuit succeeds, regulated sportsbooks like DraftKings Inc. (NASDAQ:DKNG) and Flutter Entertainment plc (NYSE:FLTR), as well as Kalshi, its most direct competitor, could pick up revenue.
More regulation also favors KYC'd rails and big retail distribution, helping Coinbase Global Inc. (NASDAQ:COIN) and Robinhood Markets Inc. (NASDAQ:HOOD), both of which have developed Prediction Market offerings.
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