Coinbase has initiated federal lawsuits against Connecticut, Illinois, and Michigan, claiming that these states are unlawfully attempting to regulate prediction markets as gambling products.
The crypto exchange is seeking legal clarity that event-based contracts offered on its platform fall exclusively under the jurisdiction of the US Commodity Futures Trading Commission (CFTC), rather than state gaming authorities, Coinbase Chief Legal Officer Paul Grewal announced on X.
Legal Dispute Over Market Classification
The lawsuits argue that state officials cannot leverage gambling laws to shut down or restrict prediction markets. Coinbase is requesting both declaratory and injunctive relief to establish the CFTC as the sole regulator for contracts listed on its platform.
Prediction markets allow users to trade contracts linked to the outcomes of future events, ranging from sports results to monetary policy decisions or elections. The contracts settle depending on whether the event occurs, making them derivatives whose value is determined by future developments.
State gaming agencies in Connecticut, Illinois, and other jurisdictions contend that certain contracts, particularly sports-related ones, function as unlicensed betting and therefore fall under gambling statutes.
Coinbase Frames Lawsuits as Federal Preemption Test
Paul Grewal emphasized that the lawsuits aim to test federal preemption.
He stated, “Prediction markets fall squarely under the jurisdiction of the Commodity Futures Trading Commission, not any individual state gaming regulator.”
Grewal added that state efforts to regulate these platforms “stifle innovation and violate the law.”
He also drew a clear distinction between prediction markets and traditional sportsbooks, noting, “Casinos win only if you lose and set odds to maximize their profits, whereas prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”
States Push Back as Market Tensions Grow
Coinbase’s complaint in Illinois asserts that the company filed the case to prevent officials from “unlawfully applying Illinois gambling laws to federally regulated transactions” that should fall under CFTC oversight.
The company recently announced its entry into the prediction markets sector through a partnership with Kalshi, expanding its offerings beyond conventional cryptocurrency trading.
Coinbase is not alone in targeting this market. Robinhood has also developed a rapidly growing prediction markets business through its partnership with Kalshi, signaling rising competition in the space.
