TL;DR:
- Coinbase sued Michigan, Illinois, and Connecticut, arguing prediction markets are federally regulated derivatives and that states cannot apply gambling rules.
- In an Illinois federal filing, Coinbase says the Commodity Exchange Act gives the CFTC exclusive jurisdiction and seeks declaratory and injunctive relief.
- It cites cease-and-desist letters and license threats, insists exchanges differ from sportsbooks, and warns sovereign immunity would block recovering lost revenue as it targets a January 2026 launch.
Coinbase has escalated a federalism fight by suing Michigan, Illinois, and Connecticut, arguing that state pressure on prediction markets collides with the Commodity Futures Trading Commission’s oversight. A jurisdictional showdown is now shaping the product roadmap, with Coinbase saying event contracts, including sports markets, are federally regulated derivatives rather than activities governed by state gambling rules. Chief Legal Officer Paul Grewal said the lawsuits are needed to prevent states from interfering with an activity already regulated at the federal level. The move lands as Coinbase readies a nationwide rollout of event-contract trading starting January 2026.
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
Where the lines are being drawn
In a filing in the Northern District of Illinois, Coinbase argues that the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and similar derivatives, and that event contracts fit that definition when traded on federally approved platforms. Preemption is the core legal lever, with the company seeking declaratory and injunctive relief to block what it calls immediate and irreparable harm from state intrusion. Grewal also cited Congress excluding only a narrow list of underliers, such as onions and motion picture box office receipts, to underscore that other subjects fall within scope. In practice.
Coinbase says the dispute is not confined to Illinois, but the state has become a focal point because officials allegedly treated sports-related contracts as violations of local law. Enforcement threats are raising the compliance temperature, Coinbase argues, citing cease-and-desist letters sent to prediction-market providers including Kalshi and Robinhood, which distributes Kalshi’s markets through a partnership. The filing says Illinois publicly threatened gambling licenses for companies that participate in or facilitate sports prediction markets and even sent a letter to the acting CFTC chair asserting such offerings violate state law. Coinbase says Illinois presence amplifies risk.
Coinbase is positioning prediction markets as neutral exchanges rather than sportsbooks, arguing that casinos profit when customers lose while exchanges simply match buyers and sellers. Reputation risk is treated as business risk, with Coinbase warning that state enforcement premised on alleged violations could undercut its standing as a publicly listed company that prioritizes compliance. It also argues that Illinois sovereign immunity would prevent recovery of lost revenue even if the state’s legal theory is rejected later. The litigation arrives as Coinbase prepares to expand prediction markets and tokenized equities across the U.S. in early 2026.
