Coinbase claimed that Rule 40.11 applies as a blanket ban when the actual law requires two separate decisions.
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 remain there.
The company warned that allowing states to write their own rules for these markets would recreate the “total chaos” of regulation that Congress created the federal derivatives framework to prevent in the first place.
Federal jurisdiction and economic facilities
Faryar Shirzad, Chief Policy Officer at Coinbase to publish The four-dot company website on the X along with the submission. According to him, event contracts are not new, as the Commodity Futures Trading Commission (CFTC) has overseen real-world emergency-related derivatives for decades.
These instruments aggregate dispersed information into prices, giving companies and individuals a way to hedge uncertainty, just like traditional futures markets. He wrote that Congress placed this oversight in federal hands specifically to avoid “fragmented interference from state to state” that would create “regulatory conflict in markets that are inherently interstate.”
message Summons The total chaos that lawmakers warned in 1974 would follow if various state laws governed the futures market.
Coinbase acknowledged that the CFTC could police edges since the agency already has the power to block contracts that go against the public interest. These are the ones who invite manipulation or settle for things like physical harm.
But the company insisted that this power should be used to address contracts with specific problems, not to deprive an entire group of people that the letter described as a public good.
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A Federal Reserve staff working paper published earlier this year found that forecast markets match or exceed the forecast accuracy of established benchmarks, including surveys conducted by the New York Fed.
A clarion call on manipulation and the public interest
Much of Coinbase’s letter grapples with how the CFTC interprets its authority to deem certain contracts to be contrary to the public interest. The cryptocurrency company pointed to the agency’s Rule 40.11, which governs when it can declare a contract to be contrary to the public’s interest.
Coinbase claimed that the rule was widely misunderstood as a blanket ban on certain categories of contracts. However, the actual law requires a two-step process that first determines whether a contract falls within any of the aforementioned categories, namely terrorism, assassination, and gaming, and then separately determines whether the specific contract is contrary to the public interest.
The company now wants an alternative rule that makes the required two-step process clear. It also recommended updating the CFTC’s guidance on how exchanges can demonstrate that a contract is not easily susceptible to manipulation.
The filing came at a time when a legal fight over prediction markets is expanding after New York’s attorney general File a lawsuit against Coinbase announced its offerings on April 22, along with the cryptocurrency exchange itself prosecution Illinois, Michigan and Connecticut in December 2025 when regulators in those states attempted to shut down those markets under gambling laws.
