Coinbase’s head of litigation says states are “gaslighting” on prediction markets

Coinbase Fires Back at State Regulators in High-Stakes Legal Battle Over Prediction Markets

In a bold escalation of its fight against state-level interference, Coinbase has taken its legal battle over prediction markets to federal court, accusing state regulators of overstepping their authority and threatening to unravel decades of established federal oversight in derivatives trading.

Ryan VanGrack, Coinbase’s VP of legal and global head of litigation, is leading the charge, arguing that states like Connecticut, Illinois, Michigan, and Nevada are attempting to “rewrite Congress’ authority” over derivatives markets. The dispute centers on Coinbase’s partnership with Kalshi, a federally regulated prediction market platform, and the states’ insistence that sports event contracts amount to illegal gambling.

VanGrack contends that these states have issued cease-and-desist letters and public warnings that have left Coinbase’s customers facing “real and imminent” threats, forcing the company to seek clarity in federal court. The legal showdown is not just about prediction markets—it’s a test of federal versus state power in the rapidly evolving world of digital assets and derivatives.

The Core Argument: Federal Jurisdiction vs. State Overreach

At the heart of the dispute is the question of who gets to regulate sports-related event contracts. VanGrack argues that the Commodity Exchange Act (CEA) grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps and derivatives, including event contracts. He points to a “special rule” in the law that allows the CFTC—not states—to prohibit gaming event contracts on public policy grounds.

States, however, are attempting to carve sports contracts out of the federal definition of swaps, a reading VanGrack says is unsupported by the statute’s text or precedent. Illinois officials, for example, argued in court that without state intervention, the markets would go unregulated due to limited CFTC resources. VanGrack dismissed this claim as “gaslighting,” emphasizing that the CFTC has long overseen multi-trillion-dollar derivatives markets and recently issued enforcement reminders around insider trading in event contracts.

Prediction Markets vs. Sports Betting: A Critical Distinction

Coinbase is making a clear distinction between exchange-traded contracts and traditional sportsbook wagers. On a designated contract market like Kalshi, buyers and sellers set prices on an exchange overseen by the CFTC. In contrast, traditional sportsbooks set odds and take the other side of the bet, a structure regulated by states.

VanGrack stressed that no one is arguing the CFTC regulates sportsbooks—only that exchange-traded event contracts fall under federal derivatives law. This distinction is crucial, as it underscores the company’s argument that prediction markets are a legitimate financial tool, not a form of gambling.

The Broader Implications: A Patchwork of Regulation?

The dispute mirrors broader fights in the crypto industry over fragmented oversight. VanGrack acknowledged that states retain authority over consumer protection and fraud, but he warned that subjecting national derivatives markets to “a patchwork of 50 regulators” would undermine investor confidence and market stability.

Congress long ago chose a unified federal framework for derivatives, he said, and prediction markets should be treated no different. The outcome of this legal battle could set a precedent for how emerging financial technologies are regulated across the United States.

What’s Next?

As Coinbase continues to push back against state regulators, the case is likely to draw significant attention from both the tech and legal communities. The company’s stance reflects a growing tension between innovation and regulation in the digital age, and the resolution could have far-reaching implications for the future of prediction markets and derivatives trading.

For now, Coinbase remains steadfast in its belief that federal oversight is the best path forward, and it’s willing to take its fight all the way to the highest courts if necessary. The battle lines are drawn, and the stakes couldn’t be higher.

Tags: Coinbase, prediction markets, Kalshi, Ryan VanGrack, CFTC, federal jurisdiction, state regulators, derivatives, event contracts, sports betting, legal battle, tech regulation, digital assets, consumer protection, market stability

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