Coinbase Challenges State Regulators Over CFTC Markets Rule
- Coinbase sues three U.S. states to secure federal CFTC authority over prediction markets.
- The exchange argues prediction markets qualify as regulated derivatives, not state gambling.
- A court ruling could decide whether state gaming rules could restrict CFTC-approved markets.
Coinbase has filed lawsuits against regulators in three U.S. states to defend its planned prediction markets. The exchange is asking federal courts to confirm that these products fall under federal commodities law. State authorities argue the contracts resemble gambling. The dispute puts the classification of event-based markets at the center of a growing regulatory conflict in the United States.
The cases were filed against regulators in Connecticut, Illinois, and Michigan. Coinbase is seeking declaratory judgments from federal judges. The company argues that prediction markets listed on a platform regulated by the U.S. Commodity Futures Trading Commission fall under the Commodity Exchange Act. It says state gambling laws should not apply to federally supervised derivatives.
Coinbase Argues Federal Law Governs Prediction Markets
Coinbase has framed the issue as one of jurisdiction rather than product structure. In a public statement, chief legal officer Paul Grewal said prediction markets fall squarely under CFTC authority. He argued that state gaming regulators lack power over federally regulated platforms. Grewal said conflicting state actions risk undermining national market oversight.
Court filings describe the dispute as a test of federalism. Coinbase warned that allowing states to independently restrict federally regulated markets would fragment oversight. The exchange said the most restrictive state interpretation could effectively dictate national policy. It argued that Congress did not intend such an outcome when designing the derivatives framework.
The company pointed to how Congress defined “commodity” in the Commodity Exchange Act. The law adopts a broad definition while carving out only a few specific exclusions. These include onions and motion picture box office receipts. Coinbase argued that lawmakers deliberately avoided excluding political, economic, or sports events from federal oversight.
Coinbase also sought to separate prediction markets from traditional gambling. The exchange said sportsbooks and casinos profit directly from customer losses. They also set odds to manage their own exposure. Prediction markets, according to Coinbase, function as neutral venues that match buyers and sellers without taking positions.
The company said its role is limited to operating a marketplace. Coinbase earns fees regardless of the outcome of events. It does not benefit from losses on either side of a trade. The exchange argued that this structure aligns with regulated derivatives markets, not gambling operations.
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Coinbase Points to Existing CFTC Safeguards and Oversight
Coinbase emphasized that prediction markets already operate under federal safeguards. These include CFTC surveillance and reporting requirements. Position limits are designed to reduce manipulation and excessive risk. The company argued that state gambling enforcement would duplicate oversight and introduce conflicting standards.
The lawsuits could have broader implications for financial innovation. A ruling in Coinbase’s favor would reinforce the CFTC’s authority over event-based contracts. It would also provide clearer guidance for federally regulated platforms seeking nationwide access. Coinbase said regulatory clarity is necessary for compliant market development.
Coinbase executive Ryan VanGrack said the legal action reflects a push for consistent national rules. He said prediction markets are structured as regulated derivatives by design. VanGrack warned that state-by-state enforcement could fragment oversight. He added that uniform federal standards help protect users and support innovation.
Market reaction to the lawsuits was limited. Coinbase shares traded at $239.20, down 2.04% on the day. The company plans to launch prediction market products for U.S. customers in January 2026. The products would be powered by Kalshi, a CFTC-regulated platform.
The court decisions could set an important precedent. A win for Coinbase would establish a clearer federal pathway for prediction markets. A loss would strengthen the authority of state gaming regulators. That outcome could increase compliance burdens for U.S.-based exchanges expanding beyond spot trading.
