Coinbase Sues Three US States Over Prediction Market Regulation
Coinbase has filed lawsuits against the U.S. states of Michigan, Illinois and Connecticut, escalating a legal battle over whether states have the authority to regulate prediction markets.
The complaints, submitted on Thursday, ask federal courts to declare that prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission, not state-level gaming regulators. Coinbase argues that Congress has already made this distinction clear, leaving individual states without the power to restrict or ban such markets.
Key takeaways:
- Coinbase is suing Michigan, Illinois and Connecticut over prediction market regulation.
- The exchange argues prediction markets fall solely under CFTC jurisdiction.
- Coinbase says state gaming regulators lack legal authority to intervene.
- The lawsuits seek declaratory and injunctive relief against state enforcement actions.
According to Coinbase, state actions aimed at prediction markets directly conflict with federal law. In a post on X, the company’s chief legal officer, Paul Grewal, said that attempts by individual states to control or block prediction markets undermine innovation and violate the regulatory framework established by Congress.
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
Federal authority versus state enforcement
In its Illinois filing, Coinbase requested both declaratory and injunctive relief, warning that continued state intervention would cause “immediate and irreparable” harm to the company. The exchange maintains that prediction markets are regulated commodities markets, not gambling products, and therefore fall squarely within the CFTC’s remit.
Grewal also pushed back against claims from some state regulators that prediction markets tied to sporting events lie outside federal authority. He noted that Congress explicitly excluded only a narrow list of underliers, such as onions and motion picture box office receipts, from the definition of a commodity. By contrast, he argued, sporting events were not excluded and therefore remain subject to CFTC oversight.
Prediction markets versus sportsbooks
Coinbase further distinguished prediction markets from traditional sportsbooks. While casinos and sportsbooks profit when customers lose, the company said prediction markets operate as neutral exchanges that simply match buyers and sellers without setting odds or taking directional risk.
The lawsuits come just one day after Coinbase announced plans to enter the prediction markets space through a partnership with Kalshi, a CFTC-regulated platform. In its court filings, Coinbase said it intends to begin offering event-based contract trading to U.S. customers starting in January 2026, including in Illinois.
Prediction markets have surged in popularity over the past year, with platforms such as Kalshi and Polymarket attracting billions of dollars in trading volume. However, their rapid growth has also drawn increased scrutiny from state authorities.
Several states have taken enforcement actions against prediction market operators, arguing that event-based contracts — particularly those linked to sports outcomes — constitute illegal gambling unless licensed under state law. Earlier this month, Connecticut regulators issued cease-and-desist orders to Kalshi, Robinhood and Crypto.com. Kalshi responded by suing the state and won temporary relief after a federal judge ordered Connecticut to pause enforcement while the case proceeds.
Coinbase’s lawsuits now set the stage for a broader legal confrontation that could determine whether prediction markets are governed by a single federal regulator or subject to a patchwork of state-level rules across the United States.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
