Connecticut Orders Three Major Firms to Halt Sports Betting Activities

By: crypto insight|2025/12/04 08:00:08

Key Takeaways

Connecticut issued cease-and-desist orders to Robinhood, Kalshi, and Crypto.com for operating unlicensed sports betting within the state.
The state’s actions reflect a broader legal landscape where federal regulation by the Commodity Futures Trading Commission (CFTC) collides with state law.
Failure to comply with the state’s order could result in significant penalties, highlighting the legal complexities facing prediction markets.
These events underscore the ongoing tension between state and federal oversight in the evolving world of online gambling and prediction markets.
Other regions, including New York and Nevada, are also grappling with similar regulatory challenges, impacting how prediction markets operate nationwide.

WEEX Crypto News, 2025-12-04 07:52:34

The Connecticut Crackdown on Unlicensed Sports Betting

In a bold move on the regulatory front, the state of Connecticut has taken decisive action against three prominent companies—Robinhood, Kalshi, and Crypto.com—for allegedly running unlicensed sports betting activities. The state has issued cease-and-desist orders to these firms, accusing them of engaging in “unlicensed online gambling” through their sports events contracts. As Connecticut tightens its grip on unlicensed gambling practices, this legal confrontation symbolizes the ongoing struggle between traditional state regulation and emerging digital marketplaces.

The Connecticut Department of Consumer Protection, which acts as the state’s regulatory body, has formally accused these companies of operating in direct violation of state gambling laws. This action is not just a mere regulatory enforcement measure but a reflection of the broader clash between state regulations and federal oversight, challenging the boundaries of legal jurisdictions within the United States’ complex legal landscape.

Robinhood’s Federal Defense

Robinhood, a company well-known for democratizing finance through its user-friendly trading platform, has publicly defended its operations following the Connecticut orders. It argues that its sports event contracts fall under federal regulation by the Commodity Futures Trading Commission (CFTC) and are facilitated through Robinhood Derivatives, LLC, a CFTC-registered entity. This claim underscores Robinhood’s position that its services are conducted in a compliant, legally sanctioned manner, suggesting that the state of Connecticut’s targeting might overstep legal boundaries set by federal authorities.

Despite Robinhood’s counter-argument about federal jurisdiction, Connecticut’s stance remains firm. The state’s notice to these companies emphasized the absence of a state license to conduct wagering activities, which is a prerequisite under Connecticut law. Furthermore, it highlighted that even if the companies were licensed, their contracts could still infringe upon various state laws, including restrictions against offering gambling services to individuals under the age of 21.

The Growing Tension Between State and Federal Regulations

This legal tussle between Connecticut and the three identified companies is indicative of a broader trend wherein state regulations are increasingly colliding with federally regulated markets, particularly in the fintech and cryptocurrency sectors. The primary argument from companies like Kalshi and Crypto.com, both regulated by the CFTC as designated contract markets (DCMs), is that federal oversight should preempt state interference.

In a related scenario, New York has engaged in a similar dispute with Kalshi, which has led to the crypto platform taking legal action against the state. The argument hinges on the belief that state laws should not encroach upon federally regulated entities. This legal contention, if unresolved, could shape the future of prediction markets significantly, potentially redefining the regulatory approach for digital and fintech enterprises.

Legal Precedents and Implications

In recent months, the debate over jurisdictional authority has gained traction, primarily highlighted by a federal judge’s ruling in Nevada. This ruling confirmed that state regulators maintain jurisdiction over specific sports-based events contracts, throwing a wrench into the industry’s argument for a solely federal oversight model. This precedent strengthens states’ positions in regulating prediction markets, challenging the regulatory protections that companies assumed under federal charters.

Given this precedent, companies like Kalshi have been prompted to appeal these decisions, setting the stage for a potentially critical showdown that could determine the extent of state versus federal regulatory power. The outcomes of these cases could have significant implications, not just for Connecticut or Nevada, but for nationwide operations of prediction markets and other digital financial services.

The Broader Impact on the Crypto and Prediction Market Industry

The ripple effects of Connecticut’s legal actions against Robinhood, Kalshi, and Crypto.com extend beyond the confines of state borders. Polymarket, another major player in the prediction market space, is also navigating similar regulatory landscapes as it prepares for a significant U.S. relaunch. This scenario paints a vivid picture of how dynamic and volatile the regulatory space is for prediction markets, a trend that will likely continue as federal and state authorities seek to assert their regulatory frameworks.

For the crypto and prediction market sectors, the Connecticut orders serve as a stark reminder of the ever-present threat of regulatory action, necessitating heightened diligence and compliance. These developments emphasize the importance of companies ensuring that their operational models are not only federally compliant but also mindful of nuanced state laws that vary across jurisdictions.

Future Prospects

As Connecticut and other states actively pursue stringent regulatory measures, the industry must brace for an evolving legal environment. Companies operating within online gambling and prediction markets need to navigate these regulatory waters carefully, balancing between federal oversight and proactive compliance with state laws. Failure to do so could result in hefty penalties or operational shutdowns, potentially stifling innovation in the burgeoning field of digital finance.

The crux of the matter remains the jurisdictional authority between state and federal oversight. As long as this jurisdictional ambiguity persists, companies in similar spaces may have to re-evaluate their operational strategies, perhaps considering enhanced collaboration with regulatory bodies to prevent future legal hurdles.

In conclusion, the Connecticut case against Robinhood, Kalshi, and Crypto.com illustrates a critical intersection in the digital marketplace’s evolution—a crossroads that will require careful navigation, strategic legal positioning, and robust compliance frameworks to thrive amidst increasing regulatory scrutiny.

FAQs

What led Connecticut to issue cease-and-desist orders against Robinhood, Kalshi, and Crypto.com?

Connecticut issued cease-and-desist orders against these companies because it accused them of conducting unlicensed sports betting through their platforms, which conflicts with state regulations requiring specific licenses for such activities.

How does Robinhood justify its operations in the face of state orders?

Robinhood defends its operations by stating that its event contracts are federally regulated by the CFTC and are offered through a CFTC-registered entity, suggesting that Connecticut’s actions may overreach into federal jurisdiction.

What are the potential consequences for these companies if they do not comply with Connecticut’s orders?

Non-compliance with the cease-and-desist orders could lead to civil or criminal penalties, which may include fines or other legal actions against the companies involved.

Why is the issue of jurisdiction between state and federal law significant in this context?

The jurisdiction issue is significant because it determines which regulatory body—state or federal—has the primary authority to oversee and regulate the operations of prediction markets, affecting how companies operate across different states.

How might this legal conflict influence the broader prediction market industry?

This legal conflict could lead to increased regulatory scrutiny and necessitate changes in how prediction markets operate across state lines. It may push companies to seek clearer legal frameworks to ensure compliance and avoid potential legal pitfalls.

Looking at revenue alone (Note: Lighter's revenue has not been market-validated for a year like Hyperliquid), by simply annualizing based on the revenue of the past month, Lighter's annualized revenue could reach 250 million USD. This means that Lighter's Price-to-Sales ratio (market cap/revenue) multiple is only 2.5 times, far lower than Hyperliquid's 7.6 times, ridiculously cheap.

Take a closer look at a closer competitor, Aster. Aster's TVL is comparable to Lighter's, with an Open Interest (OI) of about one billion more than Lighter's. However, its FDV reaches up to 7 billion, with a circulating market cap of around 2 billion. In contrast, Lighter's trading price is only one-third of Aster's.

Ask yourself: Even considering Aster's Binance/CZ halo, is Lighter's price at only one-third of Aster's reasonable? In my opinion, based on the current valuation, Lighter is severely undervalued fundamentally.

Looking at the fundamentals, you will find that only two tokens can sustain a high revenue multiple in the long run: Hyperliquid and DYDX. Why? The former has the most transparent buyback mechanism, while the latter has stood the test of time in this industry. Unlike other listed Perp Dexes, Lighter does not have a top-tier influencer like CZ or liquidity support from Coinbase to artificially pump, nor does it face the dilemma of "lack of real users" like other competitors.

Additionally, it is important to note that the over-the-counter market (SOTC) usually carries a discount because buyers bear default risks (if the opening price is twice as high as the OTC transaction price, sellers have an incentive to default), which causes people not to offer high prices in OTC but to wait and see the actual listing performance.

I choose to annualize based on the revenue of the last month for a reason: in the crypto world, everyone only has a 7-second memory, and no one has the ability to see clearly or trade for the future a year later. Therefore, only the immediate revenue of the last month is the most important indicator.

Funds Flow

The reason why Hyperliquid was able to break out on an independent trend is that many early LPs did not believe in its model. This led to those sharp-sighted retail investors sweeping all the chips and then selling to the belated buyers at a high price.

In conversations with a large number of VCs over the past few months, I have noticed a phenomenon: except for Paradigm, almost everyone missed out on Hyperliquid. This means that every VC with a liquidity fund (the vast majority of them do) will try to catch the next $HYPE.

Who is the next Hyperliquid? It's quite simple; just do a "pattern matching" between Lighter's storyline and Hyperliquid, and you'll find it's Lighter.

Looking at the token distribution, you will find: the large holders of Hyperliquid have also become the large holders and deep users of Lighter. The secret to wealth for this group of people is simple: Hold

errorToken Buyback

Passive spot buying is the only thing that can support the coin price. BTC has MicroStrategy's Saylor, ETH has Tom Lee, but for altcoins, the market only recognizes income buybacks. If you want to keep the price firm, you need passive buying in the form of buybacks. Hyperliquid understands this well.

Lighter is essentially a replica of Hyperliquid. Founder Vlad has made it clear that they will conduct buybacks. While you can't expect them to buy back 97% of the tokens, buying back 30% or 50% is reasonable. As long as there is an eight-figure (tens of millions) passive buy, this is attractive enough.

Note: In their $68 million financing (mainly for the insurance fund), the team has allocated some funds for token buybacks at TGE. This is similar to the early Hyperliquid's $75 million spot buy.

Deep Integration with Robinhood

Vlad Tenev (Robinhood's Vlad1) previously interned at Addepar for Vlad (Vlad2) from Lighter, and that's how they met. Robinhood is an investor in Lighter, and Vlad1 is also an advisor to Lighter.

There have been numerous rumors in the industry about using Lighter on Robinhood's chain. Lighter's goal is composability and will be integrated into Ethereum L1, ultimately achieving collateralized LLP token lending. This composability aligns with Robinhood's vision of "tokenizing everything" and putting everything on-chain.

While this is speculation, I support the argument that Robinhood will acquire a significant stake in Lighter (whether through tokens or equity). Given the similarity of their Payment for Order Flow (PFOF) models, I speculate that once Robinhood holds Lighter shares, it will redirect a significant portion of its traffic to Lighter. This will further strengthen this narrative.

RWA Trading

Although not limited to Lighter, RWA contract trading has proven to be a key early product-market fit. Data shows that Lighter's daily trading volume for all RWA products is $517 million, with an open interest (OI) of $271 million. Compared to Hyperliquid, Lighter is quickly catching up and even surpassing.

One key distinction is that Lighter's RWA service is not provided by a third party in the ecosystem, but rather self-operated. This makes coordination and onboarding of new assets smoother and faster. Additionally, Lighter's majority of trading volume comes from its FX contract, while Hyperliquid is mainly index contracts (80%). Ultimately, this will evolve into a pure competition of liquidity and order book depth to vie for users.

Hyperliquid's First True Competitor

The derivative market is growing rapidly, and despite a loyal fan base on Twitter shouting "Hyperliquid is the only one," the market is large enough to accommodate multiple top players. Robinhood has also opened up futures trading, as futures have a strong foothold in the crypto space and are indeed a superior trading method compared to options.

Solving the full collateral issue is the most critical challenge that Hyperliquid has outsourced to Flood and Fullstack Trade. To my knowledge, Flood is at least 6 months away from solving this problem. Lighter's larger team is more likely to tackle this challenge. Yes, Hyperliquid has a first-mover advantage, but if Lighter can swiftly integrate this feature, they may well take a slice of their cake.

Privacy

While Hyperliquid has built a cult-like community culture, its architecture has a fatal flaw for whales: complete transparency.

On Hyperliquid, leaderboards and on-chain data broadcast every large position, entry price, and liquidation point to the world. This turns trading into a PvP arena where predatory players like me can specifically hunt whales' liquidation orders and front-run large funds. Leveraging liquidation data to predict short-term tops and bottoms is traceable, and I know many traders continue to profit through this strategy.

Lighter positions itself as the antidote to this risk. By obfuscating trading flows and shielding position data, its operation is more akin to an on-chain dark pool rather than a standard DEX. For "smart money" and large funds, anonymity is not just a feature—it is a necessity. If you have a significant amount of funds, you absolutely cannot trade in a place that directly exposes your hand and liquidation point to the counterparty. As DeFi matures, venues that can protect user alpha will inevitably attract the largest flows of funds.

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