Coinbase Files Lawsuits in Illinois, Michigan and Connecticut Over Prediction Markets

Coinbase Financial Markets filed federal lawsuits Thursday towards Illinois, Connecticut, and Michigan, searching for to dam the states from imposing playing legal guidelines towards its deliberate prediction markets providing.

The firm’s Chief Legal Officer, Paul Grewal, introduced on X that the lawsuits have been filed to “verify what is obvious: prediction markets fall squarely underneath the jurisdiction of the @CFTC, not any particular person state gaming regulator.”

In its 40-page complaint, filed in the U.S. District Court for the Northern District of Illinois, Coinbase argues that federal commodities legislation preempts state playing laws with regards to occasion contracts traded on federally registered exchanges.

According to the submitting, Coinbase plans to start providing event-contract buying and selling in January 2026 via a partnership with KalshiEX LLC, a CFTC-registered trade. The contracts enable customers to commerce on predictions about future occasions, together with sports activities outcomes.

Legal technique targets state overreach

According to the criticism, prediction markets have change into a multi-billion-dollar trade. The submitting states that Kalshi introduced in July 2025 that it had facilitated greater than $2 billion in sports-related occasion contract trades.

The firm seeks:

• A preliminary and everlasting injunction stopping Illinois from imposing playing legal guidelines towards Coinbase’s occasion contract choices
• A declaratory judgment that Illinois legal guidelines are preempted by federal legislation as utilized to occasion contracts traded on CFTC-designated exchanges

Coinbase argues it faces irreparable hurt as a result of it should both abandon a “essential a part of its marketing strategy” or threat civil or prison enforcement motion. The firm states it has “devoted important assets to constructing CEA-compliant infrastructure to host occasion contract buying and selling” for “a product that Coinbase has invested substantial assets constructing over the past six months.”

The criticism argues that Illinois enforcement would injury Coinbase’s status: “Illinois’s enforcement actions, premised on the idea that Coinbase is violating state legislation however Coinbase’s full compliance with federal legislation, would instantly undermine Coinbase’s hard-earned status as a frontrunner in this house and as a public firm that values compliance and follows all relevant legal guidelines.”

Illinois has threatened civil and prison penalties

Illinois gaming regulators sent cease-and-desist letters on April 1, 2025 to Kalshi, Robinhood, and Crypto.com, alleging these corporations engaged in “sports activities wagering exercise in Illinois over the Internet and on cell gadgets” with out a state license.

The state’s place is that providing sports activities occasion contracts violates the Illinois Sports Wagering Act (230 ILCS 45), the Illinois Criminal Code (720 ILCS 5/28-1(a)), and Administrative Code provisions. Illinois threatened civil and prison penalties for non-compliance.

On April 25, 2025, the Illinois Gaming Board wrote to the CFTC expressing “important issues” about sports activities occasion contracts and urging the federal company to “prohibit the companies you oversee from providing sport occasion contracts that violate state legislation.”

On October 23, 2025, Illinois issued a public memorandum warning all licensees that events who “take part in or facilitate” prediction market actions with out a license are “engaged in unlawful playing.”

Coinbase’s federal preemption argument

Coinbase argues that occasion contracts are “swaps” underneath the Commodity Exchange Act, which grants the CFTC “unique jurisdiction” over such devices when traded on designated contract markets.

The criticism cites the CEA’s definition of swaps as protecting any settlement that “gives for any buy, sale, cost, or supply…depending on the incidence, nonoccurrence, or the extent of the incidence of an occasion or contingency related to a possible monetary, financial, or business consequence” (7 U.S.C. § 1a(47)(A)(i)-(ii)).”

Congress granted the CFTC unique jurisdiction over derivatives traded on federal exchanges via amendments to the CEA in 1974 and expanded this to particularly cowl swaps in 2010. According to the criticism, Congress eradicated language that preserved state legislation applicability to futures buying and selling, and legislative historical past exhibits Congress sought to forestall “complete chaos” from completely different state legal guidelines regulating futures markets.

Coinbase Financial Markets is registered with the CFTC as a Futures Commission Merchant (FCM). Kalshi has been a CFTC-registered Designated Contract Market since November 3, 2020 and started itemizing sports activities occasion contracts in January 2025 after certifying compliance with federal necessities.

Coinbase argues that getting state playing licenses would battle with federal necessities that exchanges present “neutral entry” to all customers nationwide, as state licenses impose geographic restrictions.

The case is assigned no 1:25-cv-15406 in the Northern District of Illinois.

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