Regulators in New York have escalated oversight efforts by directly targeting two major cryptocurrency firms expanding into prediction-based services. Authorities filed a lawsuit against Coinbase and Gemini, arguing that their platforms function as unlicensed gambling operations within the state’s jurisdiction.
State alleges labeling tactics and weak safeguards on platforms
According to Letitia James, both companies structure wagering products under alternative terminology to avoid strict gambling laws and regulatory obligations. She clarified that calling such services prediction markets does not change their purpose and makes users to bet on the financial results of uncertainty. The state therefore wants to ensure that the two platforms do not operate without the appropriate licenses granted by the New York Gaming Commission.
In addition, the case also brings up the question of the standards of user protection and access controls, especially that people as young as 18 can use such platforms. This is contrary to state laws, which do not allow the participation of any person who is below the age of 21 in gambling. Also, regulators say that such platforms do not have the systematic protection that is normally provided in licensed betting facilities and this puts one at risk of financial and behavioral harm.
Both Gemini and Coinbase have recently ventured into prediction markets following their strong presence in the digital asset trading market. In December, Gemini released its prediction service and Coinbase released itss in January. Nevertheless, this fast growth has very soon attracted the attention of regulators, and both firms are now under investigation.
Licensing dispute and federal oversight tensions intensify
State officials also claim that Coinbase and Gemini do not pay taxes, other financial obligations levied on licensed gambling companies, including taxes that are about 51 percent of gross revenue in New York. Regulators are therefore of the view that this is unfair competition environment where unlicensed platforms are in operation without the need to contribute to the same fiscal system.
In the meantime, the two firms insist that their prediction market services are not subject to state regulation but federal. They refer to the jurisdiction of the Commodity Futures Trading Commission as the main regulator of such undertakings. This argument coincides with the one adopted by Kalshi which has remained a challenge to like restrictions in various states.
Platform structure and legal classification debate grows
Furthermore, the federal regulators have strengthened their stance by taking legal action that seeks to curtail state-based intervention in prediction markets. The CFTC has also filed a case against Arizona, Connecticut and Illinois, to prevent such states to independently regulate such platforms. Notably, a judge of the federal court recently halted implementation in Arizona, which means that federal power can be prioritized in this field.
The platform offered by Gemini is a good illustration of how these services work as users can bet on the outcomes of sports events, economic indicators, and political events. Although there are various branding, the regulators contend that the setup is highly similar to traditional betting systems, both in design and functionality.
Also, the suit asserts that the two companies knowingly present their products as event contracts in order to escape the label of gambling in the current legislation. Therefore, state authorities require that regulatory frameworks must be used whether the services are labeled or marketed.
Coinbase pushes AI payments model using dormant internet standard
With increasing legal pressure, Coinbase is progressing with its payment infrastructure strategy, including supporting x402, a protocol that enables the long-disused HTTP 402 payment code to be a functioning transaction mechanism. This system enables a client to order a digital resource, get a price straight off a server, and make a payment with stablecoins in a single transaction.
Also, Coinbase launched Agentic.market, a centralized discovery engine targeting users and independent AI agents in search of compatible services. It is a storefront allowing users to browse and compare x402-enabled apps, such as CoinGecko, Google Flights, and X integrations.
Importantly, this model removes the need for accounts, subscriptions, or API keys, which have traditionally limited how software systems access third-party services. In the case of AI agents, it removes the onboarding barriers and enables real-time expansion of capabilities without having to manually configure them. This means that the system brings in a more elastic and effective method to accessing digital services, despite Coinbase continuing to face regulatory issues.
This legal battle puts Coinbase and Gemini in the spotlight of a larger national debate on prediction markets and regulatory jurisdiction. As proceedings continue, the outcome may significantly influence how digital platforms offering event-based financial contracts operate across the United States.