Coinbase Says States Are Gaslighting on Prediction Markets

Coinbase prediction markets are at the center of a heated legal clash with state regulators, after the exchange's top litigator accused multiple states of mischaracterizing federal law. Ryan VanGrack, Coinbase's VP of legal and global head of litigation, said on February 27 that states trying to shut down exchange-traded event contracts are engaged in "gaslighting" by ignoring the Commodity Futures Trading Commission's long-established authority over derivatives.

Coinbase Files Lawsuits Across Four States

Coinbase launched legal proceedings in Connecticut, Illinois, Michigan, and Nevada after rolling out prediction markets through its partnership with Kalshi. Several states responded with cease-and-desist letters or public warnings, characterizing sports event contracts as a form of illegal gambling, according to VanGrack.

VanGrack said those regulatory actions created "real and imminent" threats for customers, compelling Coinbase to seek clarity through federal litigation. The lawsuits aim to establish that exchange-traded event contracts fall under federal derivatives law rather than state gambling statutes.

Why Does Coinbase Call It Gaslighting?

Illinois officials argued in court that without state intervention, prediction markets would go unregulated due to limited CFTC resources. VanGrack dismissed that claim as "gaslighting," pointing out that the CFTC has managed multi-trillion-dollar derivatives markets for decades. He cited recent enforcement reminders around insider trading in event contracts as evidence the agency is actively policing the space.

States are framing the issue incorrectly and gaslighting on the CFTC's authority over derivatives markets.

— Ryan VanGrack, VP of Legal and Global Head of Litigation, Coinbase

Federal vs. State Jurisdiction Over Event Contracts

The central question is who holds regulatory power over sports-related event contracts. VanGrack argued the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and derivatives, including event contracts. The statute contains a "special rule" empowering the CFTC — not individual states — to prohibit gaming event contracts on public policy grounds.

States have tried to carve sports contracts out of the federal swaps definition. VanGrack said that interpretation is unsupported by the statute's text or existing precedent, and amounts to states rewriting the authority Congress granted to the CFTC.

Exchange-Traded Contracts vs. Sportsbook Wagers

Coinbase drew a sharp distinction between prediction markets and traditional sports betting. On a designated contract market such as Kalshi, buyers and sellers set prices on an exchange overseen by the CFTC. Traditional sportsbooks set odds and take the opposing side of every wager — a structure regulated by states. VanGrack stressed that nobody is arguing the CFTC should oversee sportsbooks; the fight is solely over exchange-traded event contracts.

What Does This Mean for Crypto Regulation?

The prediction markets dispute mirrors broader battles over fragmented crypto oversight in the United States. VanGrack acknowledged that states retain authority over consumer protection and fraud, but warned that subjecting national derivatives markets to a patchwork of 50 regulators would erode investor confidence and destabilize markets.

Congress chose a unified federal framework for derivatives long ago, VanGrack said, and prediction markets should be treated no differently. The outcome could set precedent for how crypto derivatives are regulated nationwide.