Coinbase Sues Three States Over Prediction Market Regulation

Coinbase has filed federal lawsuits in Connecticut, Michigan, and Illinois, challenging state attempts to block prediction markets and noting that federal regulators hold exclusive jurisdiction over the trading platforms.

The crypto exchange filed complaints seeking declaratory and injunctive relief against state gaming regulators, saying that prediction markets fall squarely under the Commodity Futures Trading Commission’s authority rather than individual state gaming boards.

“State efforts to control or outright block these markets stifle innovation and violate the law,” Coinbase Chief Legal Officer Paul Grewal tweeted Thursday.

Coinbase and prediction markets

The lawsuits come as Coinbase prepares to launch prediction markets in January 2026 through a partnership with Kalshi, a CFTC-registered designated contract market since November 2020.

The platform will allow customers to trade event contracts on sports, politics, climate, and other future events.

As a CFTC-registered futures commission merchant since August 2023, Coinbase will serve as an intermediary, providing its customers access to Kalshi’s exchange through its platform.

Calling Coinbase’s entry into the prediction market space a “powerful validation of our efforts,” Farokh Sarmad, President and Co-Founder of prediction market Myriad (owned by Decrypt’s parent company Dastan) said that, “it’s great to see industry leaders not just getting involved in prediction markets, but also fighting the good fight for this growing asset class in the courts.”

Battle with Illinois

In April, the Illinois Gaming Board issued cease-and-desist letters to Kalshi, Robinhood, and Crypto.com, alleging they were engaged in sports wagering activity without proper licensing under the Illinois Sports Wagering Act and Criminal Code, according to the Coinbase lawsuit filed in the state.

The Board also sent a letter to the CFTC in April claiming that offering sports event contracts violates state law, and in October, warned all licensees that parties who participate in or facilitate prediction markets without licensure are engaged in illegal gambling.

Coinbase says that Congress deliberately chose to exclude only specific commodities, including “onions” and “motion picture box office receipts,” from the CFTC’s jurisdiction, making clear that all other subjects, including sporting events, fall within federal regulatory scope.

“Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers,” Grewal wrote.

The complaint also warns that Illinois’s enforcement threats would immediately undermine Coinbase’s reputation as a compliance-focused platform that has facilitated nearly $1 trillion in annual trading volume and custodied more than $500 billion in digital assets.

If forced to obtain Illinois gambling licenses, the company would be restricted to serving only physically located Illinois residents, directly conflicting with federal requirements that designated contract markets provide “impartial access” to all traders nationwide, the lawsuit says.

The prediction market boom

The prediction market industry has seen billions of dollars in trading volume throughout 2025, with Kalshi’s valuation jumping to $11 billion after raising a $1 billion funding round in November.

Marcin Kazmierczak, co-founder of modular oracle Redstone, told Decrypt that 2026 will be a “make-or-break year” for prediction markets.

Emerging players like Robinhood, Gemini, and Coinbase, embedding prediction markets as features, could shift the market from a duopoly to a “multipolar market where distribution eats specialization,” Kazmierczak added.