Coinbase filed federal lawsuits against Connecticut, Illinois and Michigan, arguing that state attempts to block prediction markets exceed their authority and conflict with federal commodities law, framing the move as a bid to clear legal runway for a January 2026 prediction-market launch under a unified federal regime.
Federal preemption clash over prediction markets
Coinbase’s litigation challenges state enforcement efforts it characterizes as misapplied gambling oversight, asserting that platforms structured as commodities markets are being improperly treated as gambling operations under state law. The company links the cases to its strategic transition from a cryptocurrency-only venue toward an “Everything Exchange” encompassing prediction markets and tokenized stocks, and highlights its partnership with Kalshi, a CFTC-registered designated contract market, to underscore federal supervision of the planned products.
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…
— paulgrewal.eth (@iampaulgrewal) December 19, 2025
A prediction market is a trading platform where participants buy and sell contracts that pay out based on future events, effectively turning event outcomes into tradable contracts that aggregate probabilistic information. Coinbase argues that these contracts operate through neutral matching of buyers and sellers, emphasizing that the platform’s economics hinge on transaction intermediation rather than profiting from customer losses.
Coinbase’s filings rely on the Commodity Exchange Act to argue that federal law preempts state gambling statutes in this context, contending that exclusive CFTC jurisdiction over commodities markets bars states from imposing overlapping gambling rules that could fragment a national market. State agencies and incumbent gaming interests take the opposite view, maintaining that such contracts fall squarely within state gambling authority, and observers cited in the filings note that the jurisdictional conflict could ultimately be resolved only by the U.S. Supreme Court.
Kalshi’s status as a CFTC-registered designated contract market is presented as the linchpin of Coinbase’s compliance posture, positioning federal registration and oversight as the mechanism that delivers regulatory uniformity and predictable obligations for operators and users. Coinbase’s Chief Legal Officer Paul Grewal argued that the contested state actions “not only stifle innovation but also contravene existing law,” using that framing to justify the push for a single federal standard governing prediction markets.
If courts accept Coinbase’s preemption argument, prediction-market platforms could scale nationwide under a consolidated federal framework, reducing legal fragmentation and lowering compliance friction for operators and institutional participants. A ruling in favor of state authority, by contrast, would preserve a patchwork of state-by-state rules, constraining geographic availability, increasing implementation complexity and forcing platforms to communicate significantly higher regulatory risk to customers.
Coinbase’s lawsuits against Connecticut, Illinois and Michigan mark a high-stakes attempt to define whether state gambling regulators or the CFTC set the rules of the road for U.S. prediction markets, with the outcome directly shaping Coinbase’s January 2026 rollout timelines, governance model and how legal risk is underwritten across the broader market.