Coinbase Pushes Back Against US States Over Prediction Market Rules

The crypto exchange is seeking confirmation that prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), rather than state gaming regulators. State efforts to block these products unlawfully infringe upon federal derivatives law, it says.

In a post on X, Coinbase chief legal officer Paul Grewal said the company is confident in its position. “We’re right on the law and the facts. And we will prove it,” he said.

Federal versus state authority

At the centre of the dispute are so-called event contracts, a type of derivative that allows market participants to trade on whether a future event will occur. 

Coinbase plans to roll out event-contract trading nationally in early 2026 through a partnership with Kalshi, a CFTC-registered exchange.

Coinbase is itself registered with the CFTC as a futures commission merchant, meaning it acts as an intermediary that routes customer orders to a regulated exchange rather than be actively involved. The company argues that this places it under the remit of the Commodity Exchange Act.

State regulators, however, assert that contracts tied to sporting outcomes are a form of gambling rather than financial risk management, subjecting them to traditional state police powers.

In its court filings, Coinbase says Congress granted the CFTC exclusive jurisdiction over swaps and other derivatives traded on designated contract markets, leaving no room for states to apply gambling laws to the same activity. 

Allowing states to do so, the company argues, would undermine uniform national markets and fragment liquidity.

Illinois pushback and legal stakes

Illinois has emerged as one of the most assertive opponents of prediction markets. 

The state’s gaming regulator has issued cease-and-desist letters to firms offering access to sports-related event contracts, warning that they could face civil or criminal penalties under state law.

Coinbase’s Illinois lawsuit seeks to block enforcement of those laws, arguing that state action would force the company to either abandon a federally permitted product or risk significant legal exposure. Similar arguments underpin filings in Connecticut and Michigan.

The cases come as prediction markets attract increasing interest from both crypto firms and traditional financial players, with volumes rising sharply over the past year. 

Supporters argue the markets offer valuable price discovery and hedging tools, while critics say sports-linked contracts resemble betting and should be regulated as such.

The outcome of the lawsuits could help determine whether prediction markets are governed by a single federal rulebook or a patchwork of state regimes, a decision with significant implications for the market's future structure.