Coinbase sues 3 states for monitoring prediction markets

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

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

“Today, Coinbase filed lawsuits in Connecticut, Michigan, and Illinois to confirm what is clear: prediction markets clearly fall under the jurisdiction of the CFTC, not that of any (let alone 50) gambling regulator,” said Paul Grewal, the exchange’s chief legal officer. wrote on X.

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

Coinbase’s filings appear to be preemptive measures in anticipation of backlash from state regulators, who have targeted prediction market platforms in recent months.

States have no authority to intervene in prediction markets, says 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 politics, sports and more.

Polymarket and Kalshi are the most popular platforms on the market. Over the past few months, both platforms have seen record transaction volumes, according to Token Terminal data.

Forecast market volumes (Source: Token terminal)

Polymarket and Kalshi also announced a series of strategic partnerships this year with companies including Google, UFC and others.

However, this growth has been met with reluctance from state authorities.

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

In particular, regulators have stated that prediction markets do not fall under the CFTC’s jurisdiction when they relate to sports.

Coinbase argued that Congress had already designated the CFTC as the sole regulator of prediction markets, leaving states powerless to intervene.

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

“Prediction markets are fundamentally different from sports betting,” Coinbase’s legal head added.

Prediction markets are fundamentally different from sports betting. Casinos only win if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to prices, which connect buyers and sellers. 3/4

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

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

The exchange said that treating casinos and prediction market platforms as the same thing would not only misinterpret how Congress defines “commodities” in the CEA, but would also stifle a federally regulated product that is supposed to live within the derivatives framework, with CFTC oversight and position limits.

Kalshi got mixed results using the same arguments

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

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

In Nevada and Maryland, judges held that Kalshi was subject to state gambling oversight, although it is regulated by the CFTC. Meanwhile, federal courts in New Jersey and Connecticut have granted the company temporary protection from enforcement actions while broader injunctions are considered.

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

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