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Coinbase filed federal lawsuits against Michigan, Illinois and Connecticut this week, challenging state enforcement actions that threaten to shut down prediction market offerings the exchange plans to launch in January 2026.
The complaints argue that event-based contracts fall under exclusive federal oversight by the Commodity Futures Trading Commission, not state gaming regulators, setting up a jurisdictional clash that could determine whether prediction markets can operate nationwide or face a state-by-state patchwork of restrictions.
The legal confrontation centers on a fundamental question: who has the authority to regulate prediction markets in the U.S.? Coinbase says the answer is settled law.
In complaints filed across the three states, the exchange argues that Congress granted the CFTC exclusive jurisdiction over commodities and derivatives trading, including event-based contracts, leaving states with no role to police these markets as gambling.
“Prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator,” Paul Grewal, Chief Legal Officer, Coinbase, wrote in a public post explaining the lawsuits.
According to a Bloomberg report cited by Coinbase, regulators in Michigan, Illinois, and Connecticut have either taken enforcement action or threatened to do so against prediction market operators.
Coinbase says those moves overstep state authority and create a patchwork of rules that undermine a unified national market.
In its Illinois filing, the company warned that regulatory uncertainty could derail its expansion plans and harm customers.
State interference, Coinbase said, would cause “immediate and irreparable” damage to its business — Coinbase, in court filings seeking declaratory and injunctive relief.
The lawsuits landed just one day after Coinbase announced a partnership with Kalshi, a CFTC-regulated prediction markets platform.
Under the deal, Coinbase plans to offer U.S. customers access to event-based contracts beginning in January 2026, including residents of Illinois one of the states now being sued.
Kalshi operates under federal oversight, a point Coinbase emphasizes as central to its argument. By partnering with a CFTC-regulated entity, Coinbase says it is complying with existing federal law and should not be subject to state gaming rules designed for sportsbooks and casinos.
Grewal has also pointed to how Congress defined “commodities” under federal law. Lawmakers explicitly excluded only a narrow list of underlies such as onions and motion picture box office receipts from CFTC jurisdiction.
“Congress deliberately chose to exclude only a handful of specific underlies,” — Paul Grewal, Chief Legal Officer, Coinbase, wrote, adding that sports-related event contracts were not among them.
States opposing prediction markets argue that contracts tied to sports outcomes are indistinguishable from unlicensed sports betting. Under that view, states retain the power to regulate or prohibit the activity to protect consumers.
Coinbase disputes the comparison. It says prediction markets function as neutral exchanges that match buyers and sellers, rather than bookmakers that set odds and take the other side of a bet. That distinction, the company argues, places them firmly within federal commodities law.
Connecticut has already tested this theory in court. Earlier this month, state regulators issued cease-and-desist orders to Kalshi, Robinhood, and Crypto.com.
Kalshi challenged the action and won temporary relief after a federal judge paused enforcement while the case proceeded, signaling that courts may be receptive to federal preemption arguments.
The lawsuits are about more than one product line. They reflect a broader struggle over regulatory boundaries in digital markets one that could determine whether innovation flows through federally regulated channels or is constrained by state-level pushback.
As the cases move forward, courts will be asked to decide whether prediction markets are a form of gambling or a legitimate financial instrument. The answer will shape not only Coinbase’s 2026 plans, but the future of event-based trading in the U.S. crypto economy.
