Coinbase is stepping into the innovative realm of prediction markets, launching a new service for "event contracts" in partnership with Kalshi. This venture, however, is not without its challenges, as the cryptocurrency exchange has already initiated legal action in several U.S. states, sparking a broader conversation on the precise definition and regulatory classification of these unique financial instruments.
Coinbase's Prediction Market Launch and Legal Confrontations
Set to roll out in January 2026, Coinbase plans to offer its U.S. customers the ability to trade event contracts through its platform, powered by prediction markets operator Kalshi. Coinbase defines these offerings as "a type of derivative instrument extensively regulated by federal law that can be traded only on federally registered exchanges." To safeguard its clients' access, Coinbase has filed lawsuits in key states like Connecticut, Michigan, and Illinois, challenging laws that it claims misapply gambling regulations to these federally recognized derivative products, thereby unlawfully restricting customer participation.
Understanding Event Contracts: An Expert's View
The legal discourse has drawn attention from industry experts, including Ripple CTO David Schwartz, who weighed in on the discussion. Schwartz clarified a common misunderstanding, stating, "You're confusing the contract with the event underlying the contract." He further elaborated that whether a contract qualifies as a derivative is contingent upon "the nature of the event underlying it." Event contracts are broadly understood as derivative instruments that enable participants to trade on their predictions regarding the future occurrence of various events, which could range from economic shifts and elections to climate changes or sports outcomes, all bearing potential commercial significance.
