Key Takeaways
- Polymarket has been fined $1.4 million by the CFTC and will also be forced to shut down all of its markets.
- The prediction market service offered events contracts, something that only registered markets are allowed to do.
- Though Polymarket used cryptocurrency, it was not fully decentralized and was operated by a company in New York.
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The Commodity Futures Trading Commission (CFTC) has forced the crypto-based predictions market Polymarket to shut down.
CFTC Settles With Polymarket
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.
Until now, Polymarket allowed 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 shutdown 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 was nominally a decentralized application insofar as it did not have custody of user funds and did not impose such limits on its users. Nevertheless, Polymarket was 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 meet the same fate.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.
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