Coinbase has launched a sweeping legal offensive against three US states, arguing that its planned prediction markets should be regulated as federal derivatives products rather than as state‑level gambling. The company has filed separate lawsuits in Connecticut, Illinois, and Michigan, seeking clear judicial confirmation that event contracts listed on a US Commodity Futures Trading Commission (CFTC)‑regulated platform fall under the Commodity Exchange Act (CEA) and the CFTC’s exclusive jurisdiction.
In its complaints, Coinbase contends that once a platform is registered with and supervised by the CFTC, the products it lists must be treated as commodities derivatives, not as wagers governed by 50 different state gambling regimes. The exchange warns that allowing each state to apply its own gaming rules to federally regulated event contracts would effectively hand the most restrictive state the power to set national policy, undermining the core structure of US federalism.
Chief legal officer Paul Grewal underscored that message publicly, stressing that prediction markets, when offered through a CFTC‑regulated venue, belong firmly within the federal derivatives framework. According to Coinbase’s position, state gaming regulators should not be able to override or duplicate the CFTC’s authority simply by re‑labeling federally supervised products as “gambling.”
A key element of Coinbase’s legal theory is the text of the Commodity Exchange Act itself. The company points out that Congress deliberately adopted a broad definition of “commodity,” and when lawmakers wanted to exclude certain underliers from the derivatives system, they did so explicitly. Onions and motion‑picture box‑office receipts are among the rare carve‑outs; sports events, elections, and other real‑world outcomes are not. Coinbase argues that this legislative choice signals an intent to allow event contracts to exist inside the CEA framework, subject to CFTC rules rather than a patchwork of state prohibitions.
The exchange also tries to draw a bright line between prediction markets and conventional gambling operations. Traditional sportsbooks, casinos, and bookmakers earn revenue by setting odds and taking the other side of customer bets, profiting when users lose. Prediction markets, Coinbase says, operate more like exchanges: they match buyers and sellers of event contracts and are agnostic to the final price or outcome. In that model, the platform functions as an intermediary, not as a house wagering against its customers.
From Coinbase’s perspective, collapsing these two models into the same legal category would both misinterpret the statute and stifle an emerging class of federally supervised financial instruments. If prediction markets are treated as mere gambling products, they could be shut down or heavily constrained by state regulators, even when they are already operating under CFTC oversight with surveillance mechanisms, risk controls, and position limits designed for derivatives markets.
Coinbase’s move closely mirrors the legal strategy pioneered by Kalshi, one of the first platforms to obtain formal status as a CFTC‑designated contract market for event contracts. Over the last year, Kalshi has been engaged in a series of high‑stakes legal battles across several states, all circling the same fundamental question: are event‑based contracts regulated derivatives or unlicensed gambling products?
So far, Kalshi’s experience has produced a fragmented legal landscape. Courts in Nevada and Maryland have sided with state regulators, holding that the company remains subject to state gaming oversight despite its federal registration. In those jurisdictions, state authorities retain the power to treat certain event markets as illegal gambling, regardless of CFTC involvement. By contrast, federal courts in New Jersey and, more recently, Connecticut have granted Kalshi temporary protection from state enforcement while broader injunction requests are considered, signaling a willingness to recognize at least some degree of federal pre‑emption.
Massachusetts has taken a particularly aggressive stance, filing suit to block Kalshi’s sports‑related markets. The case is moving slowly, with a decision on a potential injunction not expected until early 2026. Until then, Kalshi and similar platforms operate in a state of legal uncertainty, with their products potentially lawful in one jurisdiction and prohibited in another, even when offered under the same federal regulatory umbrella.
By effectively adopting Kalshi’s pre‑emption strategy and scaling it up, Coinbase is attempting to force a clearer, nationwide answer. With multiple federal courts now asked to decide whether CFTC‑regulated prediction markets are pre‑empted from state gambling laws, the combined weight of these cases could push the judiciary—and eventually possibly the Supreme Court—toward a definitive ruling. The core issue is binary: will US prediction markets be treated as regulated financial instruments under the CEA, or as gambling products governed primarily by state law?
The outcome matters far beyond Coinbase and Kalshi. If courts embrace Coinbase’s argument, the US could see a more unified national framework for event contracts. Platforms might be able to list markets on elections, macroeconomic data releases, corporate events, sports outcomes, and other real‑world indicators, subject to a single federal regulator. That could open the door to broader use of prediction markets for risk management, hedging, and information discovery, similar to how futures and options are used today.
If, however, judges align with the view that these products are fundamentally bets, then state gaming regulators would retain substantial authority to approve, restrict, or ban them. That would likely produce a mosaic of rules where some states permit certain markets, others impose heavy licensing burdens, and still others prohibit the activity outright. For large platforms, building and maintaining compliance programs tailored to dozens of overlapping and conflicting state regimes could prove prohibitively complex and expensive.
This legal battle also reflects a broader debate about how financial law should adapt to new forms of digital markets. Prediction platforms blur several traditional lines: between investing and betting, between price discovery and entertainment, and between consumer protection and financial innovation. Supporters argue that properly regulated prediction markets can generate valuable forecasts, improve policy and business decision‑making, and give individuals new ways to hedge real‑world risks. Critics worry about consumer harm, market manipulation, political integrity, and the social impact of effectively turning major public events into tradeable outcomes.
For the crypto industry, Coinbase’s suits are another step in a longer campaign to secure clearer regulatory boundaries. The company has already been engaged in multiple high‑profile disputes with federal agencies over how digital assets should be classified and supervised. By pushing the prediction market question into federal court, Coinbase is not only defending a specific product line but also testing the outer edges of how far federal pre‑emption can shield innovative financial services from inconsistent state rules.
Investors and entrepreneurs are watching closely because the resolution will influence how new platforms are designed. A world where event contracts are firmly treated as derivatives could encourage more projects to build CFTC‑compliant venues, focusing on transparency, capital requirements, and surveillance systems that resemble traditional futures markets. A world where state gambling rules dominate would instead favor locally licensed gaming operators, with products framed as entertainment or betting rather than as financial instruments.
There are also practical implications for users. If Coinbase and Kalshi prevail, retail and institutional participants might gain access to a wider array of standardized, federally regulated contracts where they can take positions on inflation rates, interest‑rate decisions, commodity reports, election outcomes, or even technological milestones. Over time, these markets could become integrated into broader trading and portfolio strategies, sitting alongside spot crypto, equities, and traditional derivatives within unified “super‑apps” for finance.
If the states’ position wins out, user access would likely remain fragmented. Some residents might be able to trade only through locally approved gaming apps with strict bet limits, while others would be barred altogether from participating in certain event markets. Cross‑border enforcement challenges would persist, but major regulated platforms would be far more constrained in what they can offer nationwide.
Ultimately, the cascading lawsuits launched by Coinbase and the earlier cases involving Kalshi are setting up a critical test of how US law classifies a new category of markets that sit at the intersection of finance, data, and entertainment. Whether courts decide that prediction markets belong in the same regulatory family as futures and options, or keep them under the umbrella of gambling, will shape the evolution of this sector for years to come—and determine whether it can scale as a mainstream financial tool or remains confined to the regulatory margins.