Coinbase is intensifying its legal battle against state regulators who are attempting to impose restrictions on prediction markets, arguing that such actions misinterpret federal law. Ryan VanGrack, the company’s Vice President of Legal and Global Head of Litigation, asserts that states are overstepping their authority by trying to redefine Congress’ jurisdiction over derivatives.
In recent months, Coinbase has initiated lawsuits in Connecticut, Illinois, Michigan, and Nevada following the launch of its prediction markets in collaboration with Kalshi. Several states have responded with cease-and-desist letters and public warnings, claiming that contracts related to sports events constitute illegal gambling.
VanGrack emphasized that these state actions create “real and imminent” risks for customers, prompting Coinbase to seek judicial clarity at the federal level. He contends that the states are misrepresenting the regulatory landscape.
Illinois officials, in particular, have argued in court that without state oversight, prediction markets would operate without regulation due to the limited resources of the Commodity Futures Trading Commission (CFTC). VanGrack dismissed this assertion as “gaslighting,” pointing out that the CFTC has effectively managed multi-trillion-dollar derivatives markets for years.
He cited recent enforcement actions by the CFTC regarding insider trading in event contracts as evidence of the agency’s active role in regulating this sector. The core issue revolves around who holds the authority to regulate contracts tied to sports events.
According to VanGrack, the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and derivatives, which includes event contracts. He noted that the Act contains a provision allowing the CFTC to prohibit gaming event contracts based on public policy considerations, underscoring that states do not have this power.
Coinbase argues that there is a fundamental difference between exchange-traded contracts and traditional sportsbook wagers. In the case of Kalshi, buyers and sellers establish prices on an exchange regulated by the CFTC, whereas in sportsbooks, operators set odds and manage the bets, a system governed by state laws.
VanGrack clarified that the debate is not about whether the CFTC regulates sportsbooks, but rather that exchange-traded event contracts fall under federal derivatives law. He expressed concern that allowing states to impose their own regulations on national derivatives markets would lead to a fragmented oversight system, undermining investor confidence and market stability.
While acknowledging that states maintain authority over consumer protection and fraud, VanGrack argued that a unified federal framework is essential for the effective regulation of derivatives. He believes that prediction markets should be treated consistently with this established framework.
Coinbase is actively contesting state regulations on prediction markets, asserting that these actions misinterpret federal law. The company's legal challenges aim to clarify the jurisdiction of the Commodity Futures Trading Commission over derivatives, emphasizing the need for a unified regulatory framework.