Coinbase Sues 3 States Over Prediction Markets Oversight

US crypto exchange Coinbase has sued the states of Michigan, Connecticut, and Illinois in a bid to lock in federal protection for its planned prediction markets. 

In its Thursday filings, the exchange is asking federal judges to declare that prediction markets listed on a platform regulated by the US Commodity Futures Trading Commission (CFTC) fall under the Commodity Exchange Act (CEA) and the CFTC’s exclusive jurisdiction. 

“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),” the exchange’s Chief Legal Officer Paul Grewal wrote on X. 

The filings were made just a day after Coinbase unveiled that it will expand into the prediction markets space as part of its effort to create an “everything exchange.” This expansion will be made possible through a partnership with Kalshi, which is a CFTC-regulated platform.

Coinbase’s filings appear to be pre-emptive measures in anticipation of pushback from state regulators, who have targeted prediction markets platforms in recent months. 

States Have No Authority To Intervene In Prediction Markets, Argues Coinbase

The prediction markets space has flourished this year as users rush to bet on the outcomes of a variety of real-world events spanning across politics, sports, and more. 

Polymarket and Kalshi are the most popular platforms in the market. In the past few months, both platforms have seen record trading volumes, data from Token Terminal shows. 

Prediction markets volumes (Source: Token Terminal)

Both Polymarket and Kalshi have announced a series of strategic partnerships this year as well with companies such as Google, the UFC, and others. 

However, that growth has attracted pushback from state authorities. 

Several states have taken enforcement action against prediction market operators, arguing that event-based contracts constitute illegal gambling unless licensed under state law. 

In particular, regulators have said that prediction markets fall out of the CFTC’s jurisdiction when they relate to sports. 

Coinbase argued that Congress has already designated the CFTC as the sole regulator for prediction markets, leaving states without authority to intervene. 

Grewal said on X that state regulators’ efforts to control or outright block prediction markets “stifle innovation and violate the law.” 

“Prediction markets are fundamentally different from sportsbooks,” Coinbase’s legal chief added. 

Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers. 3/4

— paulgrewal.eth (@iampaulgrewal) December 19, 2025

“Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”

The exchange said that treating casinos and prediction markets platforms as the same thing would not only misread how Congress defines “commodity” in the CEA, but would also smother a federally regulated product that is supposed to live inside the derivatives framework, with CFTC surveillance and position limits. 

Kalshi Has Been Getting Mixed Results Using The Same Arguments

Kalshi has been trying to use the same arguments presented by Coinbase in court for nearly a year now, and has achieved mixed results. 

Kalshi has either sued or been sued in at least six states regarding whether its sports and event markets can be considered unlicensed gambling or are CFTC-regulated derivatives. 

In Nevada and Maryland, judges have maintained that Kalshi is subject to state gaming oversight despite it being regulated by the CFTC. Meanwhile, federal courts in New Jersey, and Connecticut have granted the company temporary protection from enforcement while broader injunctions are weighed. 

Massachusetts has sued to block Kalshi’s sports products. An injunction decision is not expected in this instance until early 2026. 

Related Articles:

Best Wallet – Diversify Your Crypto Portfolio

• Easy to Use, Feature-Driven Crypto Wallet
• Get Early Access to Upcoming Token ICOs
• Multi-Chain, Multi-Wallet, Non-Custodial
• Now On App Store, Google Play
• Stake To Earn Native Token $BEST
• 250,000+ Monthly Active Users