In a recent lawsuit, New York has taken action against Coinbase and Gemini, alleging that their prediction market offerings constitute unlicensed gambling products. The lawsuit highlights how these companies have advertised their prediction markets and acted as bookmakers, pointing out that users are essentially 'bettors' and each contract is a bet. Furthermore, the platforms allegedly allow individuals between the ages of 18 and 21 to place bets, which is prohibited in New York for those under 21 using mobile apps.

The lawsuit states, 'What Respondent offers through its platform is quintessentially gambling: It allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.' This is not an isolated incident, as other states such as Nevada and Washington have filed similar suits, arguing that sports-related bets are indeed bets and not federally regulated swaps. The issue is currently before multiple appeals courts and is likely to be heard by the U.S. Supreme Court.

Coinbase's Chief Legal Officer, Paul Grewal, has stated that prediction markets are federally regulated national exchanges and that the company will fight for federal oversight. On the other hand, Gemini declined to comment. The Commodity Futures Trading Commission Chairman, Mike Selig, has argued that prediction markets fall under his agency's exclusive jurisdiction, and the CFTC has taken action to block charges against prediction market providers in several states.

Another prediction market provider, Kalshi, was not named in the lawsuit but has preemptively sued the New York State Gaming Commission, seeking a ruling that state gambling laws do not apply to its platform. New York State Attorney General Letitia James has stated that both Gemini and Coinbase's products are 'illegal gambling operations,' emphasizing that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'