In a bold move to counter state regulators, Ryan VanGrack, the Vice President of Legal and Global Head of Litigation at Coinbase, is intensifying the company’s legal battle over the regulation of prediction markets. Coinbase, which recently launched these markets in partnership with Kalshi, has initiated lawsuits in multiple states, including Connecticut, Illinois, Michigan, and Nevada. This action comes in response to several states issuing cease-and-desist letters or public warnings, asserting that contracts related to sports events constitute illegal gambling.
VanGrack argues that these regulatory measures pose significant threats to customers, prompting Coinbase to seek legal clarity from federal courts. He contends that the states are misinterpreting the regulatory framework governing derivatives. Specifically, Illinois officials claimed in court that without state regulation, the prediction markets could operate in an unregulated environment due to the limited resources of the Commodity Futures Trading Commission (CFTC). VanGrack dismissed this assertion as “gaslighting,” highlighting the CFTC’s established role in overseeing the multi-trillion-dollar derivatives markets.
Central to the ongoing dispute is the question of who holds the authority to regulate sports-related event contracts. According to VanGrack, the Commodity Exchange Act grants exclusive jurisdiction over swaps and derivatives, including event contracts, to the CFTC. He pointed out a particular provision within the law that empowers the CFTC to prohibit gaming event contracts based on public policy considerations—an authority that states do not possess.
The distinction between exchange-traded contracts and traditional sportsbook wagers is critical in VanGrack’s argument. Coinbase maintains that the mechanics of its exchange-traded contracts differ significantly from those of sportsbooks, where operators set odds and take bets. On a designated contract market like Kalshi, prices are determined by the buyers and sellers, with oversight firmly under the CFTC. While acknowledging that the CFTC does not regulate traditional sportsbooks, VanGrack emphasized that exchange-traded event contracts should fall under federal derivatives law.
The implications of this legal battle extend beyond Coinbase and prediction markets. This situation reflects the larger, ongoing tensions in the cryptocurrency sector concerning regulatory authority and oversight. VanGrack noted that, while states may retain power over consumer protection and fraud prevention, applying a fragmented regulatory framework across national derivatives markets would jeopardize investor confidence and market stability. He underscored that Congress has long favored a unified federal approach for derivatives, a principle that should likewise apply to prediction markets.
