Coinbase has escalated its regulatory fight by suing Michigan, Illinois, and Connecticut over prediction market oversight. The company argues that states lack authority to regulate these markets. Instead, Coinbase says federal law assigns exclusive supervision to the Commodity Futures Trading Commission. Consequently, the lawsuits aim to block state gaming regulators from enforcing local gambling rules on event-based contracts.
The legal push reflects rising tension as prediction markets expand across the United States. Moreover, Coinbase seeks clarity before launching new products nationwide. The company warns that uneven state rules threaten innovation and consumer access. Hence, the dispute centers on who controls a fast-growing financial sector.
Coinbase’s Case for Federal Authority
Coinbase claims Congress already settled jurisdiction through commodity law. The firm says prediction markets qualify as commodities under federal definitions. Therefore, the CFTC should regulate them alone.
Coinbase Chief Legal Officer Paul Grewal has emphasized that state actions conflict with congressional intent. He argues that lawmakers excluded only limited categories from commodity coverage.
Besides, sports-related events never appeared on that exclusion list. Coinbase maintains that this structure leaves no room for state intervention.
Additionally, the company argues that prediction markets differ from casinos in structure and incentives. These platforms match buyers and sellers without setting odds. Consequently, Coinbase believes state gambling laws do not apply.
In Illinois, Coinbase requested court protection to prevent enforcement actions. The company warned that state interference would cause immediate business harm. Moreover, Coinbase stressed that uncertainty could disrupt its upcoming product rollout.
Beginning January 2026, the firm plans to offer event-contract trading nationwide. Illinois customers appear central to that expansion strategy. Hence, Coinbase wants legal certainty before operations begin.
States Push Back as Markets Grow
Prediction markets have grown rapidly over the past year. Platforms like Kalshi and Polymarket have processed billions in trading volume. However, that growth has drawn scrutiny from state regulators. Several states argue that sports-linked contracts resemble unlicensed betting.
Consequently, they have issued enforcement notices against operators. Connecticut regulators recently targeted Kalshi, Robinhood, and Crypto.com. They claimed those firms offered illegal sports wagering products. However, Kalshi challenged the action in federal court. A judge temporarily halted enforcement while reviewing the dispute.
Significantly, Coinbase’s lawsuits could set a national precedent. If courts side with federal oversight, states may lose regulatory leverage. On the other hand, a loss could fragment the market across jurisdictions.
Moreover, the timing matters as major exchanges enter the space. Coinbase’s partnership with Kalshi underscores institutional confidence in prediction markets. Hence, the outcome may shape how Americans trade on real-world events.
Source: https://coinpaper.com/13227/coinbase-challenges-michigan-illinois-and-connecticut-over-market-oversight
