Coinbase initiates legal action against three US states to resolve a contentious issue: who truly regulates prediction markets in the US? The exchange aims to establish the CFTC as the sole federal authority. This battle could reshape the future of event trading platforms across the crypto industry.
At the heart of the conflict lies a fundamental question: Do prediction markets constitute federally regulated financial instruments or gambling products under state jurisdiction? The states targeted by Coinbase argue that contracts based on events, particularly sporting ones, are tantamount to unauthorized sports betting.
Coinbase rejects this interpretation and maintains that its platforms operate as neutral exchanges, connecting buyers and sellers, unlike traditional bookmakers. The contracts offered are structured as tradable financial instruments, incorporating price discovery and liquidity mechanisms comparable to those of futures markets.
Coinbase’s legal argument relies on the legislative definition of commodities under federal law. Congress has explicitly excluded certain products from CFTC oversight, but contracts linked to sporting events do not appear in these exceptions, which, according to the exchange, places them under federal jurisdiction.
This legal battle extends far beyond Coinbase alone. Connecticut recently issued cease and desist orders against Kalshi, Robinhood, and Crypto.com, while Kalshi obtained a temporary stay of these actions from a federal judge. This decision suggests that federal courts are prepared to seriously examine the limits of state intervention authority.
Competition is intensifying in this segment. Gemini and PancakeSwap have launched their own prediction market offerings, and other exchanges are preparing similar products. The regulatory outcome in these states could create a decisive precedent. A Coinbase victory would pave the way for a unified national framework under federal supervision.
The financial stakes are considerable. Coinbase has warned that a state regulatory patchwork would cause immediate harm to its business model. The exchange is seeking legal clarification before national rollout. Without a definitive decision, each state could impose its own interpretation, permanently fragmenting the American market.
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