Coinbase recently filed a formal comment letter with the Commodity Futures Trading Commission (CFTC), arguing that prediction markets are derivatives that fall under federal jurisdiction and should stay there.

The company warned that letting states write their own rules for these markets would recreate the regulatory “total chaos” that Congress built the federal derivatives framework to prevent in the first place.

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 new, with the CFTC having overseen derivatives tied to real-world contingencies for decades.

These instruments aggregate scattered information into prices, giving businesses and individuals a way to hedge uncertainty, just like traditional futures markets. Congress, he wrote, put that oversight in federal hands precisely to avoid “fragmented state-by-state intervention” that would create “regulatory conflict in markets that are inherently interstate.”

The letter invokes the total chaos that lawmakers in 1974 warned would follow if different state laws governed the futures market.

Coinbase acknowledged that the CFTC can police the edges since the agency already has the power to prohibit contracts contrary to the public interest. Those are the ones that invite manipulation or settle on things like physical harm.

But the company insisted that this power should be used to address specific problem contracts, not to foreclose a whole category that the letter described as a public good.

A Federal Reserve staff working paper published earlier this year found prediction markets matched or beat the forecasting accuracy of established benchmarks, including the New York Fed’s own surveys.

A Call for Clarity on Manipulation and Public Interest

Much of Coinbase’s letter wrestled with how the CFTC should interpret its power to deem certain contracts contrary to the public interest. The crypto firm pointed to the agency’s Rule 40.11, which governs when it can declare that a contract is against the good of the public.

Coinbase argued that the rule has been widely misread as a blanket ban on certain categories of contracts. However, the actual statute requires a two-step process that first determines whether a contract falls into any of the enumerated categories, which are terrorism, assassination, and gaming, and then determines separately whether the specific contract is against the public interest.

The company now wants a replacement rule that makes the required two-step process explicit. It also recommended modernizing the CFTC’s guidance on how exchanges can demonstrate that a contract isn’t readily susceptible to manipulation.

The filing has come at a time when there is a widening legal brawl regarding prediction markets after New York’s attorney general sued Coinbase over its offerings on April 22, with the crypto exchange itself suing Illinois, Michigan, and Connecticut in December 2025 when regulators in those states tried to shut those markets down under gambling laws.

The post Coinbase Warns Against State-by-State Prediction Markets Chaos, Backs CFTC Oversight appeared first on CryptoPotato.

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