Coinbase sues three U.S. states over prediction‑market regulation

Prediction markets are trading in “event contracts.” Participants take positions tied to the outcome of a real‑world event (elections, sporting events, interest‑rate decisions, macro data releases, and so on). Contract prices are set by supply and demand and are often read as the market’s aggregated implied probability. Traders can also exit positions before the underlying event occurs similar to how derivatives positions can be managed and closed out on traditional markets.

That’s exactly where the dispute starts. Some states see event contracts not as financial instruments, but as a repackaged form of gambling. In early December, Connecticut’s regulator publicly demanded that several platforms immediately stop offering “sports event contracts” to state residents, citing the absence of a required license, age‑restriction issues, and consumer‑protection risks—and separately argued that “a bet in a prediction market is not an investment.” Illinois, for its part, has had the Illinois Gaming Board issue cease‑and‑desist letters, suggesting certain operators may be offering unlicensed sports betting. The list of operators cited has included Kalshi, Robinhood and Crypto.com.

Coinbase is asking courts to reach the opposite conclusion. In its filings, the company argues that prediction markets are derivatives and fall within the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). Coinbase’s lawyers contend that if a market is federally regulated, states shouldn’t be able to “reclassify” it as gambling and effectively shut residents out of the product.

The legal move also tracks closely with Coinbase’s product strategy. On December 18, 2025, in a System Update, the company announced that it is adding several major lines of business inside its main app: U.S. stock trading, prediction markets, and a broader derivatives offering.

On prediction markets specifically, Coinbase announced a partnership with Kalshi  a U.S.‑regulated event‑contracts platform. The presentation said users will be able to trade contracts tied to outcomes in elections, sports, collectibles markets, and economic indicators, with other integrations potentially coming later.

In other words, Coinbase is trying to preempt the biggest risk for this new product line: “patchwork” regulation, where the same offering can be permitted in one state and blocked in another. If courts side with Coinbase and affirm the primacy of the CFTC’s federal jurisdiction, it would make it much easier for large platforms to scale prediction markets nationwide. If states retain broad authority to treat event contracts as gambling, the industry could be stuck for years in a world of geoblocks, uneven access, and constant compliance restarts, state by state.