A crypto lobbying organization has sued the state of Illinois over a last-minute tax provision inserted into the state budget last month.

The Digital Chamber alleged that Illinois’ Digital Asset Tax Act violated both the U.S. and state constitutions and is preempted by a federal tax law. The lawsuit, filed Tuesday, asks a federal judge to block the Illinois state government from enforcing the tax.

The tax violates the Illinois state constitution’s uniformity and due process clauses, the Commerce Clause of the U.S. Constitution and the Internet Tax Freedom Act by specifying digital asset transactions, the suit said.

The Digital Asset Tax Act was passed and approved on short notice last month, right before the Illinois state government wrapped up its session for the year. The 0.2% tax applies to any entities that are based in Illinois or provide services with gross receipts of over $100,000. The tax takes effect in January.

TDC’s lawsuit said the Internet Tax Freedom Act alone created a rule that “electronic commerce would not be subjected to discriminatory state and local taxation.”

A U.S. House hearing this week zeroed in on who should regulate sports-event prediction markets and what kind of customer protections regulators can realistically enforce as these platforms expand. Lawmakers and legal specialists discussed the Commodity Futures Trading Commission’s (CFTC) role, the agency’s resourcing constraints, and the impact that pending U.S. crypto market-structure legislation—especially the Digital Asset Market Clarity (CLARITY) Act—could have on oversight of prediction market companies.

During a Tuesday session titled “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” Carl Kennedy, a partner at Katten Muchin Rosenman, said the CFTC may be “short-staffed” for both regulatory supervision and enforcement of prediction market platforms such as Kalshi and Polymarket. Kennedy argued that the CLARITY Act could help by expanding the regulator’s authority to cover not only digital assets but also the “explosive growth of prediction markets.”

Key takeaways

• A House Agriculture subcommittee hearing highlighted a perceived mismatch between the CFTC’s capacity and the rapid growth of sports prediction markets.
• Experts pointed to the CLARITY Act as a potential vehicle to expand the CFTC’s jurisdiction over prediction markets alongside crypto assets.
• The CFTC chair’s “exclusive jurisdiction” stance has intensified federal-versus-state regulatory conflict involving Kalshi and Polymarket.
• Legislators expect the CLARITY Act’s bill text to be released soon, though details on prediction-market treatment have not yet been made public.

Why lawmakers are pushing on prediction market oversight

The hearing focused on how customer protections and market integrity should work in the specific context of sports event prediction markets. Kennedy’s intervention put a practical lens on the debate: even if the legal framework is clarified, enforcement still depends on agency resources.

He told the committee that the CFTC likely lacks enough staffing to fully address both regulation and enforcement for prediction market platforms. Kennedy’s argument linked this operational challenge to legislative timing—suggesting that any additional authorities from the CLARITY Act would need to come with the capacity to carry them out.

That point matters for market participants because prediction markets often rely on clear rules about how customer funds are handled, how conflicts are addressed, and how platforms maintain orderly trading. In a fast-moving sector, regulators typically face pressure to move quickly while also building the infrastructure to supervise new product types.

The CFTC’s jurisdiction claim and the state-federal clash

Part of the hearing’s urgency comes from ongoing legal and regulatory conflict. The CFTC chair, Michael Selig, has taken the position that the agency has “exclusive jurisdiction” over prediction market companies. Selig’s reasoning is that event contracts traded on these platforms are classified as “swaps,” placing them within the CFTC’s remit.

As Kennedy’s comments and related expert discussion underscored, this approach has fueled disputes with state authorities. Many Democratic senators have characterized the CFTC’s stance as an “assault” on states trying to regulate prediction markets. Several states have pursued legal action against Kalshi and Polymarket over sports-betting-like activity.

One flashpoint involved a Michigan court ruling that Kalshi said put it in an untenable position between state and federal directives. Earlier, reporting noted that Selig ordered Kalshi to ignore the Michigan court ruling—something the company described as creating a difficult compliance bind.

Legal experts quoted in earlier coverage have also suggested that these disputes could ultimately reach the U.S. Supreme Court. The underlying issue is structural: whether states can regulate prediction markets in parallel with the CFTC’s federal authority when the regulator views the contracts as swaps.

What the CLARITY Act could change—and what’s still unknown

In the hearing, attention turned to the CLARITY Act as the most immediate legislative lever on the horizon. Kennedy said the bill could grant the CFTC additional authority to address the “explosive growth” of prediction markets, implying that Congress may be willing to clarify—at least procedurally and jurisdictionally—how these products fit within the commodities regulatory framework.

However, the specific mechanics of how the CLARITY Act would treat prediction markets were not publicly detailed as of Tuesday. In reporting from the hearing session, Republican senators pushing for a vote before August state work periods said they expect to release the bill’s text soon, but no public details were provided on how the legislation would address prediction markets, ethics, or other concerns raised by legal experts.

One signal of the policy pressure surrounding the bill comes from earlier activity in Congress. In June, gambling industry groups petitioned the U.S. Senate to add language to CLARITY that would “explicitly prohibit” event contracts tied to sports and casino-style gaming. The White House has also been linked to ethics-related provisions in the package, with reporting stating the Trump administration “agreed to the most comprehensive and wide-ranging ethics provision in history” and worked to accommodate Democratic concerns.

Taken together, these threads show a tension that markets will watch closely: legislators appear to be trying to expand regulatory clarity for digital assets and related markets, while simultaneously debating whether prediction markets—particularly those resembling sports betting—should face stricter boundaries.

Why the timeline matters for platforms and customers

The sector’s near-term planning depends heavily on what Congress does next. If the CLARITY Act’s language expands the CFTC’s authority, it could potentially reduce some uncertainty for platforms—though it may also intensify legal battles with states if the legislation is interpreted as narrowing state power.

Just as importantly, the hearing made clear that authority alone may not solve the enforcement question. Kennedy’s “short-staffed” framing suggests the market could see continued compliance and supervision gaps even as legal frameworks evolve. For customers, those gaps can translate into uneven protections—especially during periods of rapid growth.

Readers should watch the release of the CLARITY Act text and closely track how it defines prediction markets, customer protection obligations, and the relationship between federal oversight and state regulation. The next legal steps—particularly any moves that could raise questions up the court system—may determine whether the regulatory tug-of-war ends or simply shifts into a new legislative framework.

Lawmakers in the US House Committee on Agriculture’s Subcommittee on Commodity Markets, Digital Assets, and Rural Development held a hearing on how the Commodity Futures Trading Commission (CFTC) could address oversight of prediction market companies, including discussions of pending crypto market structure legislation.

In a Tuesday hearing on “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” Carl Kennedy, a partner at New York law firm Katten Muchin Rosenman, said that the CFTC was likely too “short-staffed” to fully deal with the regulation and enforcement of prediction market platforms like Kalshi and Polymarket. According to the lawyer, the Digital Asset Market Clarity (CLARITY) Act under consideration in the US Senate could grant the commodities regulator additional authority not only to address digital assets but also the “explosive growth of prediction markets.”

“I do believe that with additional resources — they’re about to perhaps receive additional authorities under the CLARITY Act — with additional resources to address these new asset classes in the cash markets and crypto, as well as to deal with the explosive growth of prediction markets, I think that the CFTC certainly should receive additional resources,” said Kennedy.

Carl Kennedy at Tuesday hearing. Source: House Committee on Agriculture

Kennedy’s remarks were just one example of legal and regulatory experts chiming in on the CFTC’s approach to handling prediction markets under Chair Michael Selig. Since being confirmed by the Senate in December, the chair has unilaterally taken the position that the agency has “exclusive jurisdiction” over the companies, arguing that event contracts on the platforms are classified as “swaps” under the CFTC’s purview. Selig is the only Senate-confirmed member heading the CFTC in a leadership panel normally consisting of five commissioners.

Related: Trump claims he can ‘future proof’ crypto regulation with CLARITY Act

The CFTC chair’s position has led to what many Democratic senators call an “assault” on state authorities trying to regulate prediction market platforms, with some US states filing lawsuits against Kalshi and Polymarket over sports betting. Last week, he ordered Kalshi to ignore a ruling from a Michigan court, which the company said “put [it] in an impossible position” between state and federal authorities. 

Some legal experts expect that one or more of the prediction markets cases could eventually reach the US Supreme Court to address the clash between state and federal regulators.

Text of CLARITY Act expected to be released soon

Republican senators pushing for a vote on the CLARITY Act in Congress before the chamber breaks for August state work periods say they expect to release the bill’s text soon. Details on how the bill could address prediction markets, ethics and other concerns from lawyers were not made public as of Tuesday.

In June, gambling industry groups petitioned the US Senate to add language to CLARITY “that explicitly prohibits event contracts tied to sports and casino-style gaming.” The White House also confirmed reports that the Trump administration “agreed to the most comprehensive and wide-ranging ethics provision in history“ and it had “bent over backward to accommodate [Democrats’] concerns.“

Magazine: Peter Brandt predicts the exact day Bitcoin’s bear market will be over

The blockchain developer will continue operating under court supervision as it restructures following a market-making scandal, a co-founder’s suspension, and exchange delistings that rocked the project.

Movement Labs, the developer behind the Movement Ethereum layer-2 blockchain, has filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the District of Delaware, according to court records.

The petition was filed July 15 under Subchapter V, a streamlined reorganization process for qualifying small businesses. The filing allows the company to continue operating while it restructures under court supervision.

On Monday, the court approved interim requests allowing Movement Labs to maintain its bank accounts and cash management systems and obtain debtor-in-possession financing to fund operations during the bankruptcy process. Creditors have until Sept. 14 to file claims.

Following the filing, Move Industries CEO Torab Torabi wrote on X that the bankruptcy applies only to Movement Labs. Move Industries, which took over development and operations of the Movement ecosystem from Movement Labs in December 2025, continues to operate normally, according to Torabi.

Source: Torab

Market-making scandal rocked Movement before bankruptcy

The filing follows months of turmoil tied to the launch of Movement’s MOVE token and a controversial market-making agreement.

Movement Labs suspended co-founder Rushi Manche in May 2025 over a deal he helped broker with Web3Port. The market maker received 66 million MOVE, about 5% of the token’s supply, and later sold the holdings, reportedly creating roughly $38 million in downward price pressure and prompting an independent investigation.

Coinbase suspended MOVE trading later that month after determining the token no longer met its listing standards, as the review into the market-making arrangement continued.

The bankruptcy follows a prolonged decline of the MOVE token, which has fallen more than 94% over the past year to roughly $0.01.

MOVE token price over the past year. Source: CoinGecko

Cointelegraph is committed to independent, transparent journalism. This news article is produced in accordance with Cointelegraph’s Editorial Policy and aims to provide accurate and timely information. Readers are encouraged to verify information independently.