Coinbase (COIN), the crypto exchange that plans to add prediction markets to its platform, is taking legal action in Connecticut, Illinois and Michigan over the states’ attempts to regulate those markets.
The company filed the lawsuits to “confirm what is clear,” Chief Legal Officer Paul Grewal wrote in a post on X on Friday: that prediction markets fall under the jurisdiction of the US Commodity Futures Trading Commission (CFTC) and not individual state gambling regulators.
Prediction markets let users speculate on events by buying shares in contracts tied to potential outcomes such as the winner of a boxing match or central bank interest rate decisions. Coinbase on Wednesday announced plans to incorporate prediction markets, initially by integrating Kalshi. State gambling authorities are trying to flex their muscles to prevent such services from being offered on the basis that they are a form of gambling.
“State efforts to control or outright block these markets stifle innovation and violate the law,” Grewal wrote.
“Prediction markets are fundamentally different from sportsbooks. Casinos only win if you lose and set odds to maximize their profits,” he added. “Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”
The markets are classified as a form of derivatives because their value depends on the outcome of a future event.
Congress deliberately excluded certain specific underlying factors from its definition of a commodity, making it clear that everything else falls within the CFTC’s purview, according to Grewal.
“Coinbase brings this action to prevent Defendants from unlawfully applying Illinois gambling laws to federally regulated transactions subject to uniform federal law under the CFTC’s exclusive jurisdiction,” the exchange’s Illinois filing dated Dec. 18 states.
