Coinbase recently filed a formal comment letter with the Commodity Futures Trading Commission (CFTC), arguing that prediction markets are derivatives subject to federal oversight and should remain regulated at the federal level.
The company warned that allowing individual states to create their own rules for these markets would recreate the regulatory “total chaos” Congress aimed to prevent when it established the federal derivatives framework.
Federal Jurisdiction and Economic Utility
Faryar Shirzad, Coinbase’s Chief Policy Officer, posted the company’s four-point position on X alongside the submission. According to him, event contracts are not a new phenomenon: the CFTC has supervised derivatives linked to real-world contingencies for decades.
These instruments collect dispersed information into market prices, giving businesses and individuals a way to hedge uncertainty similar to traditional futures markets. Congress placed that oversight at the federal level to avoid “fragmented state-by-state intervention” that could create “regulatory conflict in markets that are inherently interstate,” the letter states.
The filing recalls warnings from lawmakers in 1974 about the “total chaos” that would result if different state laws governed the futures market.
Coinbase acknowledged that the CFTC already has authority to police problematic contracts, including those that invite manipulation or are settled on matters like physical harm. The company argued, however, that this authority should be used to address specific problematic contracts rather than to bar an entire category that the letter describes as a public good.
Supporting this stance, a Federal Reserve staff working paper published earlier this year found that prediction markets matched or outperformed established forecasting benchmarks, including surveys conducted by the New York Fed.
A Call for Clarity on Manipulation and Public Interest
Much of Coinbase’s letter focused on how the CFTC should interpret its power to deem certain contracts contrary to the public interest. The firm pointed to the agency’s Rule 40.11, which governs when a contract can be declared against the public good.
Coinbase argued that Rule 40.11 has often been misread as a broad ban on specific categories of contracts. In the company’s view, the statute requires a two-step analysis: first determine whether a contract falls into enumerated categories such as terrorism, assassination, or gaming, and then separately evaluate whether the particular contract is against the public interest.
The company called for a replacement rule that makes this two-step process explicit and recommended updating the CFTC’s guidance on how exchanges can demonstrate that a contract is not easily susceptible to manipulation.
The filing arrives amid an expanding legal conflict over prediction markets. New York’s attorney general sued Coinbase over its offerings on April 22, and Coinbase itself sued the states of Illinois, Michigan, and Connecticut in December 2025 after regulators in those states attempted to shut down the markets by applying state gambling laws.