Coinbase prediction markets clash with US states as exchange sues over federal authority

US oversight of Coinbase prediction markets is emerging as a key test of how far states can go in policing event-based trading under federal commodities law.

Coinbase challenges state authority over prediction platforms

Coinbase has filed lawsuits against the US states of Michigan, Illinois, and Connecticut, escalating a legal fight over who has the authority to regulate prediction markets in the United States. The company argues that these markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), while several states say event-based contracts resemble gambling.

According to the exchange, the three states have either taken action or threatened enforcement against prediction market operators despite allegedly lacking the legal authority to do so. Moreover, Coinbase is seeking court orders that would affirm that prediction markets are governed by the CFTC, not state gaming regulators, and would block state enforcement while the issue is resolved.

Partnership with Kalshi and January 2026 rollout

The lawsuits follow Coinbase’s announcement of a partnership with Kalshi, a CFTC-regulated prediction markets platform, as the exchange prepares to offer trading in event-based contracts. According to court filings, Coinbase plans to roll out prediction market access to U.S. customers starting in January 2026, including users based in Illinois.

However, the legal push underscores how the kalshi coinbase partnership has become a flashpoint in the broader regulatory debate.

Coinbase wants clarity before expanding access nationwide, highlighting the risk that inconsistent state decisions could chill product development even under federal oversight.

Coinbase argues for clear CFTC jurisdiction

Coinbase’s legal team said the cases are meant to clarify what the company views as settled law and to cement what it calls CFTC jurisdiction over markets tied to events. The company wrote that “Prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator,” arguing that state attempts to block or control these markets undermine innovation and conflict with federal statutes.

In its Illinois filing, Coinbase warned that state interference could cause “immediate and irreparable” harm to its business and future offerings.

That said, the exchange acknowledged that only a definitive court ruling can prevent a patchwork of state interpretations, so it is seeking both declaratory and injunctive relief to halt enforcement actions while federal courts weigh the issue.

Gambling concerns and the sports angle

At the center of the dispute is whether prediction platforms, particularly those tied to sports outcomes, should be treated as gambling. Several states have argued that event-based contracts function like unlicensed sports betting and therefore fall under state gaming regulation rather than commodities oversight.

Coinbase disputes that characterization, saying these venues operate as neutral exchanges that match buyers and sellers instead of setting odds for profit.

Moreover, the company emphasizes that sports betting vs prediction markets is a materially different framework, since contracts are structured as tradable financial instruments rather than wagers against a house.

Congressional definitions and CFTC remit

To bolster its position, Coinbase pointed to Congress’s definition of commodities under federal law, highlighting that lawmakers carved out only a narrow list of exclusions from CFTC oversight. Items such as onions and motion picture box office receipts are exempted, the filings note, but sports-related event contracts are not listed among those exceptions.

Therefore, Coinbase argues that the Coinbase prediction markets strategy remains within the CFTC’s remit and that states cannot reclassify event contracts as gambling products simply to extend their own authority. However, the outcome of these cases could set a precedent for whether other types of event-based financial products face similar jurisdictional challenges.

Connecticut enforcement actions and industry response

The new lawsuits arrive after recent enforcement actions by Connecticut regulators, who issued Connecticut cease and desist orders to Kalshi, Robinhood and Crypto.com. Kalshi challenged the move in court and obtained temporary relief when a federal judge paused state enforcement while that case proceeds.

These actions have amplified industry concerns that aggressive state moves could fragment oversight of event-linked contracts. That said, the federal court’s willingness to pause enforcement against Kalshi suggests judges are prepared to at least examine the boundaries of state power in this area.

Rising competition in prediction markets

Industry participants have been accelerating their push into prediction markets, with platforms such as Gemini and PancakeSwap among the latest to roll out offerings. Rival exchanges, including Coinbase and Crypto.com, have also been exploring similar expansions as competition for users and liquidity intensifies.

As more firms test these products, questions over state regulation prediction markets versus federal oversight are likely to grow more urgent. Moreover, the regulatory outcome in Michigan, Illinois, and Connecticut could influence whether other states pursue their own enforcement actions or defer to CFTC rules.

What the legal fight could decide

The current prediction markets legal fight is poised to clarify whether event-based contracts will be governed primarily as federally regulated commodities or as state-controlled gambling products. The answer will shape how platforms structure offerings, where they can legally operate, and how quickly new products reach U.S. customers.

In summary, Coinbase’s lawsuits aim to secure a judicial ruling that solidifies CFTC control over event-linked trading, limits conflicting state actions, and provides a clearer path for innovation in this fast-evolving corner of the digital asset market.