Coinbase (COIN), the crypto exchange that plans to add prediction markets to its platform, is taking legal action in Connecticut, Illinois, and Michigan over the states’ attempts to regulate those markets.
The company filed lawsuits to “confirm what is clear,” Chief Legal Officer Paul Grewal wrote in a post on
Prediction markets allow users to speculate on events by purchasing shares in contracts linked to potential outcomes such as the winner of a boxing match or central bank interest rate decisions. Coinbase on Wednesday announced plans to add prediction markets, initially by integrating Kalshi. State gambling regulators are trying to flex their muscles to prevent such services from being offered on the basis that they are a form of gambling.
“State efforts to overtly control or block these markets stifle innovation and violate the law,” Grewal wrote.
“Prediction markets are fundamentally different from sports books. Casinos only win if you lose and set odds to maximize their profits,” he added. “Prediction markets are neutral, price-indifferent exchanges that bring together buyers and sellers.”
Markets are classified as a form of derivatives because their value depends on the outcome of a future event.
According to Grewal, Congress deliberately excluded certain specific underlyings from its definition of a commodity, making clear that everything else falls within the CFTC’s purview.
“Coinbase brings this action to prevent defendants from unlawfully applying Illinois gaming laws to federally regulated transactions that are subject to uniform federal laws under the exclusive jurisdiction of the CFTC,” the Illinois exchange filing dated Dec. 18 said.
