Coinbase has sued Connecticut, Illinois and Michigan in federal court, arguing that state officials are unlawfully trying to regulate prediction markets as gambling products.

The crypto exchange wants judges to confirm that event-based contracts on its platform fall under the exclusive jurisdiction of the US Commodity Futures Trading Commission (CFTC), not state gaming regulators, Coinbase's Chief Legal Officer Paul Grewal announced on X.

Coinbase has filed federal lawsuits against Connecticut, Michigan and Illinois, arguing that those states cannot use gambling statutes to shut down or restrict prediction markets.

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The complaints seek declaratory and injunctive relief that would establish CFTC as the sole regulator of event contracts listed on its platform.

What Coinbase Is Fighting Over

Prediction markets allow users to buy and sell contracts linked to future outcomes, from sports results to monetary policy decisions or election results. The contracts settle based on whether an event occurs, which makes them a form of derivative whose value depends on a future state of the world.

State gaming agencies in Connecticut, Illinois and other jurisdictions argue that many of these contracts, especially sports-related ones, function as unlicensed betting and therefore fall under gambling law.

Chief Legal Officer Paul Grewal framed the lawsuits as a test of federal preemption, insisting that “prediction markets fall squarely under the jurisdiction of the Commodity Futures Trading Commission, not any individual state gaming regulator.” He described state attempts to control or block these markets as efforts that “stifle innovation and violate the law.”

Grewal drew a sharp line between prediction markets and traditional sportsbooks, arguing that “casinos win only if you lose and set odds to maximize their profits,” while “prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”

States Push Back as Industry Tensions Rise

Coinbase’s Illinois filing states that it brought the case to stop officials from “unlawfully applying Illinois gambling laws to federally regulated transactions” that it says fall under the CFTC’s exclusive jurisdiction.

“Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers,” Grewal argued.

Coinbase recently announced that it is entering the prediction markets business through a partnership with Kalshi, extending its offering beyond traditional crypto trading.

Coinbase is not the only firm targeting prediction markets, as Robinhood has already developed a rapidly growing business in this area through its partnership with Kalshi.