Coinbase and Gemini face Connecticut cease-and-desist orders

Nine platforms received cease-and-desist orders from Connecticut's Department of Consumer Protection — Underdog, Polymarket, Coinbase, Crypto.com, Robinhood, Prophet X, Novig, Webull, and Gemini — and the one that has drawn the least attention may tell you the most about where this fight is going.

Coinbase and Gemini are not prediction market companies. They are federally regulated cryptocurrency exchanges that happen to offer event contracts. Their inclusion in the Connecticut order signals that the DCP is not drawing a line between dedicated contract markets and adjacent financial infrastructure. It is drawing a line around a product category and asking every distributor to stop.

That framing matters legally, because the preemption argument that Underdog, Robinhood, and Kalshi have each pressed in federal court rests on a specific architecture: they are designated contract markets operating under CFTC authority, and the Commodity Exchange Act gives that authority primacy over state gaming regulation. Coinbase and Gemini share that federally regulated status in cryptocurrency, but their DCM relationship to the specific event contracts at issue is a different question. Connecticut may have handed at least two of the nine defendants a harder preemption argument to make — or an easier one, depending on how a district court reads the scope of Section 22 of the CEA.

Underdog's 39-page complaint in the District of Connecticut asks for both a declaratory judgment and a permanent injunction. The declaratory relief request is the more interesting of the two. Underdog is not simply asking a court to block Connecticut while litigation proceeds. It is asking for a ruling that the state is categorically without jurisdiction to apply gaming regulations to event contracts traded on federally designated markets. That is a broader claim than an injunction, and it carries more risk — a ruling on the merits in either direction has precedential weight that a temporary restraining order does not.

Connecticut's position is not merely jurisdictional. The DCP's substantive objections concern access: event contracts available to people under 21, to individuals on self-exclusion lists, and on in-state college teams. These are not novel concerns about prediction markets as a concept. They are the same consumer protection conditions that Connecticut has imposed on every licensed sportsbook operating in the state. The argument is less that federal law is wrong and more that federal law, as applied to these platforms, creates a gap that state regulators have a legitimate interest in filling.

The gap is real. The CFTC has authority under 7 U.S.C. § 7(d)(14) to determine that an event contract is contrary to the public interest — including on gaming grounds — and to prohibit it. The Commission has not acted on any such determination with respect to the contracts Connecticut has targeted. Whether that silence is deference, neglect, or the product of a deliberately incomplete rulemaking record is the question federal courts in Connecticut are going to have to answer without much guidance from the agency itself.

The standard that will govern Underdog's preliminary injunction request is familiar: likelihood of success on the merits, irreparable harm, balance of equities, and public interest. On the preemption question, likelihood of success turns on whether CEA Section 22 and the CFTC's exclusive jurisdiction over DCM-listed contracts displaces state consumer protection authority over the same instruments, even where the state's objection is not to the contract structure but to who is allowed to hold it.