What to Know:
- Coinbase filed lawsuits in Connecticut, Illinois, and Michigan, seeking to block state gaming regulators from asserting authority over prediction markets it says fall under federal oversight.
- The exchange argues prediction markets are derivatives regulated by the CFTC, not gambling products, and has integrated the federally supervised platform Kalshi to support its offering.
- The legal fight comes as Coinbase expands beyond crypto trading, adding stocks, tokenized assets, and prediction markets while pushing for uniform national regulation.
Coinbase has filed lawsuits in three US states, regarding a legal dispute over who has the authority to regulate prediction markets as the crypto exchange prepares to expand its product offerings. The filing, in Connecticut, Illinois, and Michigan, were attempts to prevent state gaming regulators from attempting to assert control over markets that Coinbase maintains are under federal control.
Coinbase Sues US States Over Prediction Markets
The litigation is designed to clarify jurisdiction and not create regulatory interpretations, the exchange said. Coinbase Chief Legal Officer Paul Grewal described in a post on X that it is seeking courts to affirm that prediction markets are controlled by the US Commodity Futures Trading Commission rather than by individual state gambling regulators.
Today @coinbase filed lawsuits in CT, MI, and IL to confirm what is clear: prediction markets fall squarely under the jurisdiction of the @CFTC, not any individual state gaming regulator (let alone 50). State efforts to control or outright block these markets stifle innovation…
— paulgrewal.eth (@iampaulgrewal) December 19, 2025
Prediction markets enable users to purchase and trade contracts that are linked to the outcomes of future events. They can run the gamut from sports results to economic signals, including central bank interest rate moves. Prices rise and fall as markets expect, and payouts hinge on how things play out.
Coinbase also announced earlier this week that they will be integrating prediction markets into their platform through an integration with Kalshi, a federally regulated exchange subject to the supervision of the CFTC.
The integration is not exclusive but it puts Coinbase squarely in the middle of an escalating regulatory fray. State regulators in multiple jurisdictions have said that prediction markets are akin to gambling products and as such should also be subject to state-level gaming laws. Coinbase and others argue that these contracts are financial derivatives and not wagers and already fall under federal commodities law.
Grewal stated that the state efforts to restrict prediction markets risk destabilizing a federally regulated system. He had claimed that Congress has consciously assigned control of such tools to the CFTC to provide uniform rules nationwide. State-level regulation “further fractures and legal uncertainty,” said Coinbase.
Coinbase argued in its Illinois filing, filed on December 18, that the lawsuit is intended to prohibit the unlawful application of state gambling laws to transactions that fit within the CFTC’s exclusive jurisdiction. According to the complaint, prediction market contracts meet the legal definition of derivatives due to the fact that their value is tied to the outcome of a potential future event. The dispute is not new.
Kalshi, Robinhood Markets, and Crypto.com have all come under legal attack from state governments over the same products. Courts’ rulings have had mixed results, and some jurisdictions have left the regulatory status of prediction markets uncertain in several other ways. Analysts said the matter may get to the U.S. Supreme Court in time to reach as early as next year. At the heart of the debate lies a more general struggle over regulatory power.
States’ authorities are urged by casino operators and state agencies to make gambling laws for prediction markets that pass, effectively consolidating regulation in the hands of state regulators. Market operators are quick to point out that such practices violate national statutes stipulating in law for the very definition and regulation of derivatives trading. The question is already settled by Congress, Coinbase says.
The lawsuits are intended to confirm current law, not challenge it, Grewal said in a statement. The company isn’t blaming state regulators for acting in bad faith, yet said inconsistent enforcement could stifle innovation in financial markets, it added. The legal battle follows Coinbase’s effort to expand its operations beyond crypto trading.
At its recent System Update Conference, the exchange outlined plans to expand into stock trading, custom stablecoins, tokenized assets, and AI-driven investment tools. Prediction markets form part of that broader strategy.
Coinbase has already rolled out stock trading features and a limited prediction market offering.
Also Read: Coinbase Europe Fined €21.5M Over Ireland’s AML Monitoring Errors
