Why it is important: Ryan VanGrack, Coinbase’s vice president of legal and global head of litigation, is stepping up Coinbase’s challenge to state regulators, saying they are trying to rewrite Congress’s authority over derivatives.
- Coinbase has filed lawsuits in Connecticut, Illinois, Michigan, and Nevada after launching prediction markets in partnership with Kalshi.
- Some of those states issued cease-and-desist letters or public warnings, arguing that sporting event contracts amount to illegal gambling.
- VanGrack said those actions left customers facing “real and imminent” threats that forced Coinbase to seek clarity in federal court.
The argument: VanGrack says states are framing the issue incorrectly.
- Illinois officials argued in court that without state intervention, markets would be deregulated due to the CFTC’s limited resources.
- VanGrack called that statement “gaslighting,” saying the Commodity Futures Trading Commission has long overseen multibillion-dollar derivatives markets.
- He pointed to recent CFTC enforcement reminders about insider trading in event contracts as evidence that the agency is actively policing the space.
Federal power versus state power: At the center is who can regulate contracts for sports-related events.
- VanGrack argued that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps and derivatives, including event contracts.
- The law contains a “special rule” that allows the CFTC (not states) to ban gaming event contracts for public policy reasons.
- States are attempting to exclude sports contracts from the federal definition of trades, a reading VanGrack said is not supported by the statute’s text or precedent.
Sports betting distinction: Coinbase says exchange-traded contracts fundamentally differ from sports betting.
- In a contracts market designated as Kalshi, buyers and sellers set prices on an exchange overseen by the CFTC.
- At traditional sportsbooks, operators set odds and take the other part of the bet, a structure regulated by states.
- No one is arguing that the CFTC regulates sports betting, VanGrack said, only that exchange-traded event contracts are subject to federal derivatives law.
At stake most important: The dispute reflects broader crypto fights over fragmented oversight.
- VanGrack said states retain authority over consumer protection and fraud.
- But subjecting national derivatives markets to “a patchwork of 50 regulators” would undermine investor confidence and market stability.
- He said Congress long ago chose a unified federal framework for derivatives and that prediction markets should not be treated differently.
