Polymarket Fined $1.4 Million By CFTC For Operating A Non-Designated Facility

• The CFTC recently revealed that it initiated an order filing against Polymarket for operating an illegal unregistered facility and the Polymarket platform recently revealed that it had landed on a settlement with CFTC.

• The Polymarket platform is set to pay a civil monetary penalty of about $1.4 million and eliminate markets that do not comply with the CFTC and CEA regulations.

• The CFTC highlighted that the civil monetary penalty received by Polymarket had been reduced due to its cooperation during the investigation.

Polymarket is a decentralized crypto prediction platform based in New York, which allows its users to bet on market events’ results through binary options contracts, including activities like political elections and pro-sports games. 

The platform recently revealed that it has now landed on a settlement with CFTC (Commodity Futures Trading Commission), as per which it will pay a penalty of about $1.4 million. The CFTC also recently announced that it had initiated an order filing & simultaneously settling charges on Ploymarket. CFTC, in its press release, said that the platform is being held responsible for “offering off-exchange event-based binary options contracts and failure to obtain designation as a designated contract market (DCM) or registration as a swap execution facility (SEF).”

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Details From The Order

The order revealed that to date, Polymarket has already served over 900 different event markets ever since it was founded in 2018. The website served event markets for users to place bets on the outcomes that depend on a yes or a no. The events included questions like, will Trump win the 2020 presidential election or will $ETH cross $2,500 on July 22 and many more.

The platform was found to be operating a non-designated or illegal unregistered facility for binary options online trading contracts based on events that are known as event markets. As per the orders, Polymarkets would have to end all the markets from its platform that does not comply with the regulations of CFTC & CEA (Commodity Exchange Act) and will have to pay a civil monetary penalty of $1.4 million.

Following the order, Polymarket posted a tweet explaining the settlement, their excitement to move ahead, and prematurely resolving the market that does not comply with the Act.

As per CFTC, “such event market contracts, each of which is composed of a pair of binary options, constitute swaps under the CFTC’s jurisdiction, and therefore can only be offered on a registered exchange in accordance with the CEA and CFTC regulations.” Therefore, the platforms that serve exposure to the market should be regulated under the CFTC & CEA. The press release also included an urge from Vincent McGonagle, the acting director of enforcement at CFTC, for derivatives markets to get registered with the enforcement body and specifically mentioned this for those operating in the DeFi (Decentralized Finance) ecosystem.

The press release said, “all derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space. Market participants should proactively engage with the CFTC to ensure that our markets remain robust, transparent, and afford customers the protection provided under the CEA and our regulations.”

Reduced Fine

As per some earlier reports, the CFTC launched its investigation for Polymarket in October 2021 and simultaneously hired former enforcement head of CFTC, James McDonald, to manage the investigation. However, the CFTC revealed that as Polymarket has shown fundamental cooperation while investigating the platform, it received a reduced civil monetary penalty.