Coinbase Sues Three States Over Prediction Market Regulation – Decrypt

Coinbase has filed federal lawsuits in Connecticut, Michigan, and Illinois, difficult state makes an attempt to dam prediction markets and noting that federal regulators maintain unique jurisdiction over the buying and selling platforms.

The crypto alternate filed complaints searching for declaratory and injunctive reduction towards state gaming regulators, saying that prediction markets fall squarely beneath the Commodity Futures Buying and selling Fee’s authority moderately than particular person state gaming boards.

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

Coinbase and prediction markets

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

The platform will enable clients to commerce occasion contracts on sports activities, politics, local weather, and different future occasions.

As a CFTC-registered futures fee service provider since August 2023, Coinbase will function an middleman, offering its clients entry to Kalshi’s alternate by means of its platform.

Calling Coinbase’s entry into the prediction market area a “highly effective validation of our efforts,” Farokh Sarmad, President and Co-Founding father of prediction market Myriad (owned by Decrypt’s mother or father firm Dastan) stated that, “it is nice to see trade leaders not simply getting concerned in prediction markets, but in addition combating the great combat for this rising asset class within the courts.”

Battle with Illinois

In April, the Illinois Gaming Board issued cease-and-desist letters to Kalshi, Robinhood, and Crypto.com, alleging they had been engaged in sports activities wagering exercise with out correct licensing beneath the Illinois Sports activities Wagering Act and Prison Code, in keeping with the Coinbase lawsuit filed within the state.

The Board additionally despatched a letter to the CFTC in April claiming that providing sports activities occasion contracts violates state regulation, and in October, warned all licensees that events who take part in or facilitate prediction markets with out licensure are engaged in unlawful playing.

Coinbase says that Congress intentionally selected to exclude solely particular commodities, together with “onions” and “movement image field workplace receipts,” from the CFTC’s jurisdiction, making clear that each one different topics, together with sporting occasions, fall inside federal regulatory scope.

“Prediction markets are impartial exchanges, detached to cost, that match consumers and sellers,” Grewal wrote.

The grievance additionally warns that Illinois’s enforcement threats would instantly undermine Coinbase’s repute as a compliance-focused platform that has facilitated almost $1 trillion in annual buying and selling quantity and custodied greater than $500 billion in digital property.

If compelled to acquire Illinois playing licenses, the corporate can be restricted to serving solely bodily situated Illinois residents, immediately conflicting with federal necessities that designated contract markets present “neutral entry” to all merchants nationwide, the lawsuit says.

The prediction market growth

The prediction market trade has seen billions of {dollars} in buying and selling quantity all through 2025, with Kalshi’s valuation leaping to $11 billion after elevating a $1 billion funding spherical in November.

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

Rising gamers like Robinhood, Gemini, and Coinbase, embedding prediction markets as options, may shift the market from a duopoly to a “multipolar market the place distribution eats specialization,” Kazmierczak added.