Coinbase has launched legal action against Connecticut, Illinois and Michigan as it prepares to expand into prediction markets, escalating a growing dispute over whether these products fall under federal commodities law or state gambling rules.
The cryptocurrency exchange said the lawsuits seek judicial clarity on which regulators have authority over prediction markets. Chief Legal Officer Paul Grewal said the cases aim to “confirm what is clear,” that the markets belong under the supervision of the U.S. Commodity Futures Trading Commission rather than state gaming agencies.
Prediction markets allow participants to trade contracts linked to the outcomes of future events. These contracts can reference elections, economic data, sporting contests or policy decisions. Coinbase announced this week that it plans to introduce such products through an integration with Kalshi, a federally regulated operator.
States and federal regulators clash over jurisdiction
State gaming regulators in the three states have taken or signaled enforcement actions against prediction market operators, arguing that the products resemble gambling. Coinbase said those actions overstep state authority and conflict with federal law governing derivatives.
Grewal criticized state-level intervention, writing, “State efforts to control or outright block these markets stifle innovation and violate the law,” and added that the company sees a clear distinction between prediction markets and traditional betting models.
Coinbase maintains that Congress placed these contracts within the CFTC’s remit by broadly defining commodities while excluding only a narrow set of underliers. Because prediction market contracts derive value from future outcomes, the company argues they qualify as federally regulated derivatives.
In its Illinois lawsuit, dated Dec. 18, the company stated, “Coinbase brings this action to prevent Defendants from unlawfully applying Illinois gambling laws to federally regulated transactions that are subject to uniform federal law under the exclusive jurisdiction of the CFTC,” according to the filing.
Legal uncertainty intensifies across the market
The lawsuits arrive amid wider friction between state authorities and firms offering event-based contracts. Kalshi, along with Robinhood and Crypto.com, has faced scrutiny from multiple states seeking to classify prediction markets as wagering activity.
In November, a federal judge in Las Vegas allowed Nevada gaming regulators to proceed with enforcement actions against Kalshi’s sports-related contracts, a ruling that underscored the unsettled nature of the regulatory framework. State agencies and casino interests continue to argue that these products fall within gambling statutes, while operators insist that federal commodities law applies.
Coinbase said it is targeting the attorneys general of the three states in its suits and will seek court orders blocking state interference. The company warned that enforcement actions aimed at other operators could extend to its own platform as it rolls out prediction markets as part of a broader effort to diversify revenue.
Leadership changes add another variable
The dispute unfolds as leadership at the CFTC changes. Michael Selig has been confirmed as chairman, coinciding with the planned departure of Commissioner Caroline Pham. Pham had signaled openness to CFTC oversight of prediction markets during her tenure, aligning with industry arguments.
Selig has not outlined a clear stance on event-based contracts, offering no firm position during his nomination hearing. With conflicting court decisions and expanding state challenges, legal analysts have suggested the issue could reach the Supreme Court as early as next year.
Source:
“Coinbase files lawsuits in 3 states over attempts to regulate prediction markets”, coindesk.com, December 19, 2025
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