Coinbase has launched legal action against regulators in Connecticut, Michigan, and Illinois, escalating the debate over who has authority to oversee prediction markets in the United States, Chief Legal Officer Paul Grewal reported on X.
The crypto exchange confirmed that it has filed lawsuits in all three states, arguing that prediction markets fall under federal commodities regulation rather than state gaming laws. The move comes as Coinbase prepares to expand prediction market offerings on its platform.
“Today @coinbase filed lawsuits in CT, MI, and IL to confirm what is clear: prediction markets fall squarely under the jurisdiction of the @CFTC, not any individual state gaming regulator (let alone 50). State efforts to control or outright block these markets stifle innovation and violate the law.”
Federal vs. State Authority
At the core of the dispute is a jurisdictional question: whether prediction markets should be regulated by individual state gaming authorities or by the U.S. Commodity Futures Trading Commission (CFTC) at the federal level.
Coinbase maintains that prediction markets qualify as commodity-based derivatives and therefore fall squarely within the CFTC’s mandate. According to the company, attempts by states to classify these products as gambling or sports betting represent an overreach that conflicts with federal law.
Why Prediction Markets Are Not Sportsbooks
Coinbase also draws a clear distinction between prediction markets and traditional gambling platforms.
Unlike sportsbooks or casinos, which profit directly from user losses and set odds to maximize house margins, prediction markets operate as neutral exchanges. They simply match buyers and sellers of contracts tied to real-world outcomes, without taking directional risk on the result itself.
This structural difference, the company argues, places prediction markets closer to financial markets than to gaming operations.
A Growing Crypto Narrative
Prediction markets have become one of the fastest-growing narratives in crypto, attracting significant attention as both centralized and decentralized platforms experiment with event-based trading products. Several major exchanges have already begun integrating prediction-style contracts, reflecting rising demand from users seeking exposure to real-world events through financial instruments.
Coinbase’s legal action signals that the regulatory battle over these products is far from settled — and may ultimately require federal courts to clarify the boundaries between state gaming laws and commodities regulation.
What’s at Stake
If Coinbase prevails, the rulings could set an important precedent for how prediction markets are regulated across the U.S., potentially limiting the ability of individual states to impose separate or conflicting rules. A loss, however, could fragment the regulatory landscape, forcing platforms to navigate a patchwork of state-level restrictions.
For now, the lawsuits mark a significant step in defining the future of prediction markets — not just for Coinbase, but for the broader crypto industry.