US crypto exchange Coinbase has sued the states of Michigan, Connecticut and Illinois in an attempt to secure federal protection for its planned prediction markets.
In its filings Thursday, the exchange asks federal judges to declare that prediction markets listed on a platform regulated by the U.S. Commodity Futures Trading Commission (CFTC) are subject to the Commodity Exchange Act (CEA) and the exclusive jurisdiction of the CFTC.
“Today, Coinbase filed lawsuits in CT, MI and IL to confirm what is clear: prediction markets fall squarely under the jurisdiction of the CFTC, and not of any individual state gambling regulator (let alone 50),” said Paul Grewal, the exchange’s Chief Legal Officer. wrote on X.
The filings were made just a day after Coinbase revealed that it will expand into the prediction markets space as part of its efforts to create an “all exchange.” This expansion is made possible through a partnership with Kalshi, a CFTC-regulated platform.
Coinbase’s filings appear to be preemptive measures in anticipation of pushback from government regulators, who have targeted prediction markets platforms in recent months.
States have no authority to intervene in prediction markets, Coinbase argues
The prediction markets space has blossomed this year as users rush to bet on the outcomes of a variety of real-world events spanning politics, sports and more.
Polymarket and Kalshi are the most popular platforms on the market. In recent months, both platforms have seen record trading volumes, data from Token Terminal shows.
Market volume forecast (Source: Token terminal)
Both Polymarket and Kalshi have also announced a series of strategic partnerships this year with companies like Google, the UFC and others.
However, this growth has led to resistance from government authorities.
Several states have taken enforcement actions against prediction market operators, arguing that event-based contracts constitute illegal gambling unless licensed under state law.
In particular, regulators have said that prediction markets fall outside the CFTC’s jurisdiction as they relate to sports.
Coinbase argued that Congress has already designated the CFTC as the sole regulator of prediction markets, leaving states without authority to intervene.
Grewal said on
“Prediction markets are fundamentally different from sportsbooks,” Coinbase’s legal chief added.
Prediction markets are fundamentally different from sportsbooks. Casinos only win when you lose and set their odds to maximize their winnings. Prediction markets are neutral exchanges, indifferent to price, that connect buyers and sellers. 3/4
— paulgrewal.eth (@iampaulgrewal) December 19, 2025
“Casinos only win when you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”
The exchange said treating casinos and prediction market platforms as the same would not only misinterpret the way Congress defines “commodity” in the CEA, but would also stifle a federally regulated product that is supposed to live within the derivatives framework, with CFTC oversight and position limits.
Kalshi has had mixed results with the same arguments
Kalshi has been trying to use the same arguments Coinbase made in court for almost a year now, and has had mixed results.
Kalshi has filed or has already been sued in at least six states over whether its sports and events markets can be considered unlicensed gambling or are CFTC-regulated derivatives.
In Nevada and Maryland, judges have maintained that Kalshi is subject to state gambling supervision, despite being regulated by the CFTC. Meanwhile, federal courts in New Jersey and Connecticut have granted the company temporary protection from enforcement while broader injunctions are considered.
Massachusetts has filed a lawsuit to block Kalshi’s sports products. In this case, a ban decision is not expected until early 2026.
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