Why it’s important: Ryan VanGrack, Coinbase’s vice president of legal affairs and global head of litigation, sharpens Coinbase’s challenge to state regulators, saying they are trying to rewrite Congress’ authority over derivatives.
- Coinbase filed lawsuits in Connecticut, Illinois, Michigan and Nevada after launching prediction markets in partnership with Kalshi.
- Some of these states have issued cease letters or public warnings, arguing that contracts related to sporting events amount to illegal gambling.
- VanGrack said these actions left customers facing “real and imminent” threats that forced Coinbase to seek clarification in federal court.
The argument: VanGrack says states are misdefining the problem.
- Illinois officials argued in court that without state intervention, markets would be unregulated because of the CFTC’s limited resources.
- VanGrack called the claim “gaslighting,” saying the Commodity Futures Trading Commission has long overseen multibillion-dollar derivatives markets.
- He pointed to recent CFTC recalls regarding insider trading in event contracts as evidence that the agency is actively monitoring the space.
Federal power or state power: At the center is the question of who can regulate contracts related to sporting events.
- VanGrack argued that the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and derivatives, including event-driven contracts.
- The law contains a “special rule” allowing the CFTC – not states – to ban gaming event contracts for public policy reasons.
- States are attempting to exclude sports contracts from the federal definition of exchanges, a reading that VanGrack says is not supported by the law’s text or precedent.
Sports betting distinction: Coinbase claims that exchange-traded contracts differ fundamentally from betting on sportsbooks.
- In a contract market designated as Kalshi, buyers and sellers set prices on an exchange overseen by the CFTC.
- In traditional sports betting, operators set the odds and take the other side of the bet, a structure regulated by states.
- No one is arguing that the CFTC regulates sports betting, VanGrack said — only that exchange-traded event contracts fall under federal derivatives law.
More important issues: The dispute reflects broader crypto struggles over fragmented surveillance.
- VanGrack said states retain authority over consumer protection and fraud.
- But subjecting national derivatives markets to “a patchwork of 50 regulators” would undermine investor confidence and market stability.
- Congress chose a unified federal framework for derivatives long ago, he said, and prediction markets should be treated no differently.
