CFTC Settles With Polymarket
The predictions market has been fined $1.4 million and forced to close some of its markets.
Key Takeaways
- Polymarket has been fined $1.4 million by the CFTC and will also be forced to shut down some of its markets.
- The prediction market service offers events contracts, something that only registered markets are allowed to do.
- Though Polymarket uses cryptocurrency, it is not fully decentralized and is operated by a company in New York.
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The Commodity Futures Trading Commission (CFTC) has fined Polymarket $1.4 million and forced the crypto-based predictions market Polymarket to close some of its markets.
Polymarket Fined $1.4 Million
According to a CFTC press release made public today, Polymarket’s parent company, Blockratize, Inc., has been charged with “offering off-exchange event-based binary options contracts.” The CFTC says that the platform offered more than 900 of these markets. According to a statement from Polymarket, the service will be forced to close three of those markets.
Polymarket allows users to bet on the outcome of real-world events, such as reported COVID-19 cases, national inflation rates, and political elections and nominations. Contracts of these types can only be offered on a registered exchange, according to the CFTC.
“Polymarket creates, defines, hosts, and resolves the trading and execution of contracts for the event-based binary options markets offered on its website,” the CFTC’s announcement reads.
As a result of the settlement, Polymarket must pay a $1.4 million civil monetary penalty and terminate all markets displayed on Polymarket.com. The enforcement action comes at an inopportune time for the service, which recently raised $4 million in a funding round.
Can Prediction Markets Evade Regulation?
Cryptocurrency-based prediction markets are often considered a way to avoid U.S. regulations that limit such activities. The mainstream prediction market PredictIt limits investments to $850, for example, while the Iowa Electronic Markets (IEM) limits positions to $500.
Polymarket is nominally a decentralized application insofar as it does not have custody of user funds and does not impose such limits on its users. Nevertheless, Polymarket is operated by a company in New York, which allowed regulators to target the platform.
It is uncertain if maximally-decentralized prediction markets, such as Augur and Omen, could also draw the attention of the CFTC and other regulatory bodies.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.
Correction: This article originally reported the CFTC had required Polymarket to shut down all of its markets. This was not accurate and the reporting has been updated accordingly.
