TL;DR
- Attorney General Letitia James demands that the companies refund illegal profits and provide compensation to affected users for operating without the required gambling licenses.
- The platforms launched their prediction markets in December 2025 following the surge in election betting, allowing access to individuals under 21 years of age.
- Coinbase, through its CLO Paul Grewal, has formally rejected the allegations and plans to defend the legality of its services before New York courts.
This Wednesday, the platforms Coinbase and Gemini received news of the lawsuit filed by the New York Attorney General, who alleges that both companies’ prediction market services constitute illegal gambling. The prosecutor’s office asserts that these companies operate outside the state regulatory framework, as they do not hold a license from the gaming commission.
The conflict arises following the massive rollout of these tools in late 2025, designed to capitalize on interest in political and financial events. Regulators indicate that, due to the lack of oversight, users between 18 and 21 years old have access to high-risk financial products.
Prediction market platforms managed to expand to 50 U.S. states despite pressure from regulatory bodies. Now, with this legal clash, the goal is not only economic fines; the immediate cessation of activities that evade New York State tax obligations is also an objective.
On the other hand, the prediction market ecosystem faces unprecedented scrutiny after years of tension with the CFTC and state commissions. Meanwhile, competitors like Polymarket are advancing their infrastructure by announcing native stablecoins to gain efficiency.
Regulatory challenges and the future of prediction markets
Attorney General James’ office maintains that “gambling by another name is still gambling” and must be subject to constitutional laws. This stance challenges the narrative of crypto companies that define these products as financial derivatives or hedging tools.
In this context, the defense for Coinbase and Gemini argues that their platforms meet technological standards superior to those of traditional operators. However, the prosecution emphasizes the potential harm to the mental and financial well-being of the younger sectors of the population.
It is worth noting that precedents such as those of Kalshi and Polymarket had already marked a path of prohibitions and temporary cease-and-desist orders between 2022 and 2025. Nevertheless, the magnitude of the current actors elevates the dispute to a federal scale that could redefine the sector.
Additionally, the impact on corporate reputation could affect their market capitalization if investors perceive a systemic legal risk. Regulatory clarity remains the “Achilles’ heel” for the institutional adoption of blockchain-based prediction services.
The outcome of this litigation will determine whether prediction markets can coexist with state gambling laws or if they require a new legal category. For now, the industry remains on alert for similar lawsuits in other U.S. jurisdictions.
