Coinbase v. Tong: The CFTC's Swap Proposal Cuts Both Ways for Coinbase

Coinbase Asks the Second Circuit to Shut States Out of Prediction Markets

Coinbase has asked the Second Circuit to hold that its event contracts, including sports contracts, are swaps under the Commodity Futures Trading Commission's "exclusive" jurisdiction and that Connecticut's laws have "no role to play," according to Law360's report on the opening brief. The appeal is Coinbase Financial Markets, Inc. v. Tong, No. 26-2297. Coinbase filed its opening brief on October 7, 2026.

But here is the part the headlines are missing. On October 9, 2026, the CFTC proposed a rule, RIN 3038-AF82, to expressly add sports, political, cultural and weather event contracts to the swap definition. Connecticut can argue that if those contracts were already clearly swaps, the agency would not need a rule to say so. The CFTC frames the proposal as clarification, and it filed an amicus brief in the appeal supporting Coinbase.

Here is what happened, why it matters, and what operators should decide this quarter.

How a Connecticut Cease-and-Desist Became a Federal Appeal

Coinbase sued Connecticut, Illinois and Michigan on December 18, 2025.

Coinbase Financial Markets is a CFTC-registered futures commission merchant. The sports contracts at issue are listed on KalshiEX, a CFTC-registered designated contract market, according to a CFTC court filing.

On August 10, 2026, U.S. District Judge Vernon D. Oliver denied Coinbase a preliminary injunction. He found Coinbase had not shown it was likely to succeed on its arguments that the contracts are swaps or that federal law preempts Connecticut's gambling laws. The appeal was filed and docketed in mid-August 2026.

The Distinction That Matters: A Proposed Rule Is Not the Law

Operators tend to read the CFTC's October 9 package as a win for prediction markets. It may become one. Today it is something narrower.

Two rules, two different legal statuses

• The proposal (RIN 3038-AF82) is not binding. Comments are due 30 days after Federal Register publication, and the agency can change or abandon it.
• The companion interim final rule (RIN 3038-AF81) excludes casino-style products, including sportsbook wagers and casino games, from the swap definition and was reported to take effect immediately.

The mechanics create a litigation problem. Coinbase's preemption argument depends on the statute as written today. A court reviewing a preliminary injunction denial asks whether Coinbase was likely to win under existing law, not under a rule that may be finalized months from now. Connecticut can fairly argue that an agency proposing to "add" event contracts to the definition is conceding they are not clearly in it.

The counterargument is real. The CFTC frames the proposal as further definition, and the interim exclusion signals where the agency draws the federal line. Neither reading is settled. That is the point.

A Circuit Split Means the Map Depends on Where You Operate

The Second Circuit is not writing on a blank page. The Third Circuit held 2–1 on April 6, 2026, in KalshiEX v. Flaherty, that sports event contracts are swaps and that the Commodity Exchange Act preempts New Jersey's law. The Ninth Circuit held 3–0 on August 28, 2026, in KalshiEX v. Assad, that Kalshi was unlikely to show sports contracts are swaps. The Sixth Circuit reached the same result as the Ninth on September 25, 2026, in KalshiEX v. Schuler.

New Jersey's cert petition, Flaherty v. KalshiEX, No. 26-299, was filed September 2, 2026. The message is unmistakable: until the Supreme Court acts or a final CFTC rule survives challenge, the legality of a sports contract can turn on the customer's state.

That carries real consequences for product roadmaps, state geofencing, partner contracts with DCMs and FCMs, and investor diligence. The Second Circuit has not yet ruled, so no one should model a ruling date.

What Your Leadership Team Should Decide This Quarter

Decisions, not monitoring

First, decide whether to comment on RIN 3038-AF82. The comment window is short once the proposal is published, and the final definition will govern your product line for years.

Second, map state exposure by contract type. Sports contracts in Connecticut, Ninth Circuit states and states with active cease-and-desist orders carry different risk than weather or economic contracts.

Third, test your products against the casino-style exclusion. The interim final rule (RIN 3038-AF81) excludes casino-style products, including sportsbook and casino wagers, from the swap definition, which would undercut a federal preemption defense for those products.

Fourth, reread partner agreements. Confirm who bears the cost of a state enforcement action between the DCM, the FCM and your platform.

• Brief the board on the circuit split and the cert petition.
• Set a trigger for pausing state launches if the Second Circuit affirms.
• Document why each listed contract is a swap, not a wager.