Coinbase has filed lawsuits against regulators in three U.S. states—Connecticut, Illinois, and Michigan— challenging their attempts to regulate prediction markets as gambling.
The crypto exchange argues that prediction markets event contracts on outcomes like elections, economic data, or sports fall under the exclusive jurisdiction of the federal Commodity Futures Trading Commission (CFTC) as derivatives, not state gambling laws.
This preemptive legal action follows Coinbase’s announcement of a partnership with CFTC-regulated platform Kalshi to launch prediction market trading for U.S. customers starting January 2026.States have recently issued cease-and-desist orders or threats against platforms like Kalshi, classifying certain event contracts as unlicensed gambling.
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Coinbase’s Chief Legal Officer Paul Grewal stated that the lawsuits seek to “confirm what is clear: prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator.”
The cases highlight a broader jurisdictional clash: federal preemption via the Commodity Exchange Act versus state authority over gambling. Outcomes could determine whether prediction markets operate nationwide under uniform federal rules or face a fragmented patchwork of state restrictions, potentially stifling innovation.
This builds on similar ongoing disputes involving Kalshi and other platforms. Coinbase’s preemptive lawsuits filed against regulators in Connecticut, Illinois, and Michigan seek declaratory judgments affirming that CFTC-regulated prediction markets fall under exclusive federal jurisdiction via the Commodity Exchange Act (CEA), preempting state gambling laws.
Establishes strong precedent that the CFTC has sole authority over these derivatives. This would override state gambling classifications, enabling uniform nationwide access under one federal framework. Platforms like Coinbase via its Kalshi partnership could launch in January 2026 without navigating 50 separate state regimes.
If states win: Prediction markets could face a fragmented landscape, requiring state-specific gambling licenses or bans in restrictive jurisdictions. This would limit availability, similar to online sports betting post-2018 PASPA repeal.
It will resolve ongoing jurisdictional clashes building on Kalshi’s mixed court outcomes in states like Nevada vs. New Jersey. Reinforces CEA’s broad “commodity” definition excluding only items like onions or movie receipts, treating event contracts as financial tools for price discovery and hedging, not “house-edged” gambling.
Victory for Coinbase/Kalshi would accelerate mainstream adoption, integrating prediction markets into apps like Coinbase, Robinhood, and others. This could boost trading volumes already billions in 2025 via Kalshi/Polymarket and spur innovation in DeFi, tokenized assets, and information markets.
Loss could stifle U.S. growth, pushing development offshore to decentralized platforms and harming competitiveness. Coinbase argues state interference causes “immediate and irreparable harm” by blocking federally approved products.
Cears path for Coinbase’s “universal exchange” strategy: Expanding beyond crypto spot trading into derivatives and event contracts. Benefits partners like Kalshi, CFTC-regulated since 2020 and the Coalition for Prediction Markets including Robinhood.
Distinguishes neutral, market-making platforms indifferent to outcomes from traditional sportsbooks which profit from losses. Its highlights tensions in U.S. federalism: Prevents the “most restrictive state” from effectively setting national policy.
Potential precedent for other emerging fintech/crypto products blurring finance and “wagering” lines. Timing aligns with new pro-innovation CFTC leadership like Chairman Michael Selig confirmed December 2025.
These cases are a pivotal stress test for regulating novel financial instruments. Outcomes could shape prediction markets’ trajectory for years, either fostering a vibrant U.S. ecosystem or creating barriers that slow progress. Developments are recent, so appeals or consolidated rulings may follow.