Written by Gui Ruofei
Traditional American polling organizations could never have imagined that they would be replaced not by advanced artificial intelligence but by a Web3 prediction platform. In the 2024 election, data from numerous polling organizations consistently showed Harris holding a clear advantage over Trump in terms of support. However, the Polymarket platform's predictions diverged significantly from these polling organizations, with Trump's odds consistently far ahead of Harris. Ultimately, with Trump's crushing victory over Harris in the 2024 presidential election, Polymarket shot to fame and entered the public eye.
However, behind Polymarket's rapid growth, compliance issues and regulatory pressure have always lingered, becoming the biggest obstacle to its further expansion. Facing the aggressive regulatory pressures of various countries, Polymarket has forged a unique compliance path. This article will provide an in-depth analysis of Polymarket's regulatory landscape, compliance risks, and compliance path from a professional perspective within the Web3 industry and cross-border compliance, providing a reference for future Web3 entrepreneurs and project developers.
CNN officially writes about the Polymarket prediction market that shined in the US election
1. What exactly is Polymarket?
Polymarket, an emerging Web3 prediction market platform, has rapidly established itself as a leader in the prediction market since its launch in 2020, leveraging the transparency and decentralization inherent in blockchain technology. Polymarket's prediction markets cover a wide range of topics, spanning political events, capital markets, economic indicators, sporting events, and even socio-cultural events. This breadth of events is key to its appeal to a large user base, but it also complicates its classification and regulation across various jurisdictions. Users on Polymarket primarily make predictions by purchasing event tokens that predict specific outcomes, with token prices fluctuating between $0 and $1. Therefore, the price of Polymarket's event tokens reflects the prediction market's collective perception of the likelihood of that outcome in real time.
Polymarket's core value proposition lies in leveraging blockchain technology to transform abstract predictions into priced, tradable digital assets, allowing users to profit from them. For example, during the 2024 election, the price of a token betting on a "Trump win" event climbed from an initial price of $0.30 to $0.92, ultimately settling at $1 upon the election results. This price fluctuation accurately captured the true shift in public opinion during the election and created a significant wealth effect for users who successfully predicted the outcome.
Polymarket's rapid rise in the Web3 prediction market space has garnered significant attention from the capital market. To date, Polymarket has successfully completed two rounds of funding, raising over $70 million in total. Investors include renowned Ethereum co-founder Vitalik Buterin and Peter Thiel's Founders Fund.
2. A Brief Analysis of Polymarket’s Global Regulatory Dilemma
1. United States: Identified as a binary option, ultimately settled with the CFTC
In the US market, Polymarket's initial compliance challenges stemmed from strict enforcement by the Commodity Futures Trading Commission (CFTC). In January 2022, the CFTC imposed a $1.4 million civil penalty on Polymarket and issued a cease and desist order. Pursuant to the Commodity Exchange Act, the CFTC determined that the "event contracts" offered in Polymarket's prediction market fell within the jurisdiction of the Act. The Act explicitly provides for the CFTC's regulatory authority over futures, options, and swaps markets.
Therefore, when prediction markets allow users to bet on events like election results and economic indicators, the CFTC tends to treat these products as binary options or swaps, thus falling within its exclusive jurisdiction over derivatives markets. In other words, the CFTC believes that the "event contracts" offered by Polymarket fall under its jurisdiction as financial derivatives, rather than gambling or betting. Therefore, the core of the CFTC's allegations is that Polymarket operates an unregistered derivatives trading platform and has failed to register with the CFTC as a swap execution facility or designated contract market, as required by the Commodity Exchange Act.
The above figure shows the definition of Commodity Pool in Section 1 1a (10) of the Commodity Exchange Act.
Furthermore, the prediction market in which Polymarket operates is facing a tug-of-war between federal and state regulators. The CFTC is attempting to assert exclusive jurisdiction over prediction markets through the Commodity Exchange Act, classifying them as "event contracts." However, gambling regulators in some US states have deemed prediction markets "illegal gambling" and have filed lawsuits. For example, on March 27, 2025, the New Jersey Division of Gaming Enforcement issued a cease-and-desist order to Kalshi, a direct competitor of Polymarket, prohibiting it from providing unlicensed sports betting services.
Kalshi has been engaged in a protracted legal battle with gambling regulators in New Jersey and elsewhere. Although New Jersey District Court Judge Edward Kiel ruled that Kalshi's sports event contracts fall within the exclusive purview of the CFTC and ordered New Jersey regulators to cease interfering with Kalshi's operations, the dispute remains unresolved. This dispute between federal and state jurisdictions further exacerbates uncertainty surrounding the regulatory environment for prediction markets in the United States.
Therefore, even if platforms like Polymarket obtain federal approval, they may still face legal challenges and litigation risks at the state level. This coexistence of "dual regulation" and a "regulatory vacuum" not only increases compliance costs for platforms but also hinders their full expansion in the US market.
The above image shows the original text of Judge Edward Kiel's ruling granting Kalshi's request for a preliminary injunction against the Gaming Enforcement Department.
2. Europe: Identified as gambling and blacklisted
However, Polymarket's compliance challenges aren't limited to the United States. Polymarket also faces significant regulatory pressure in other jurisdictions around the world. In the European Union, the implementation of the Markets in Crypto-Assets Act (MiCA Act) established a unified regulatory framework for crypto-asset service providers (CASPs), covering asset-referenced tokens (ARTs), electronic money tokens (EMTs), and other crypto-assets not covered by existing financial services legislation. However, MiCA Act does not explicitly include prediction markets within its scope, leaving room for independent regulation by individual countries based on their gambling laws. Therefore, even though MiCA Act provides a unified authorization framework for crypto-asset services in the EU, prediction market platforms still face fragmented regulation across European countries.
In Europe, regulators in several countries took regulatory action against Polymarket between November 2024 and January 2025. The Swiss Gambling Supervisory Authority blacklisted Polymarket.com on November 26, 2024, citing violations of local gambling and sports betting regulations for its prediction markets. France's National Gaming Authority announced on November 29, 2024, that following an investigation, Polymarket had agreed to geo-block French users because its "gaming products" may violate French law.
French regulators reportedly took action in part due to concerns raised by the aforementioned French traders who placed significant US election bets on the Polymarket platform. Subsequently, on January 8, 2025, Polish Finance Ministry officials blocked access to Polymarket.com for residents of the country, citing the platform as "providing gambling services in violation of Polish law."
From this, it can be seen that European countries generally adopt a conservative and prudent regulatory attitude towards prediction markets headed by Polymarket. Most regulatory agencies regard prediction markets as gambling activities and strictly regulate and restrict them in accordance with their respective gambling laws.
3. Singapore: Violation of two laws
Singapore's regulatory framework for prediction markets combines the Payment Services Act and the Gambling Control Act 2022, each targeting Polymarket from different angles. First, the Monetary Authority of Singapore (MAS) strictly licenses and regulates digital payment token service providers under the PSA. MAS determined that the Polymarket platform operated a digital payment token service without a license and highlighted the significant anti-money laundering/countering the financing of terrorism (AML/CFT) risks, as well as the lack of investor protection mechanisms and user dispute resolution mechanisms.
Meanwhile, the Singapore Gambling Regulatory Authority (GAA) designated the Polymarket platform as an illegal gambling website under the Gambling Control Act 2022 and blocked it. The Act explicitly states that only state-licensed platforms, such as Singapore Pools, are permitted to offer online gambling services in Singapore. Consequently, Polymarket faces a dual compliance challenge in Singapore: meeting the licensing and regulatory requirements for digital payment token services under the Payment Services Act while also avoiding the strict gambling industry entry restrictions imposed by the Act.
The above picture shows the announcement issued by the Singapore Gambling Regulatory Authority after blocking Polymarket.
From the regulatory comparisons across the aforementioned jurisdictions, it's clear that global regulators' approach to prediction markets exhibits a significant dichotomy between "financialization" and "gambling." For example, the US CFTC tends to consider prediction markets "event contracts" under the Commodity Exchange Act (CEA), attempting to incorporate them into the regulatory framework for financial derivatives like options and swaps. This classification recognizes the potential value of prediction markets in information discovery and risk hedging, but also requires them to bear the strict regulatory responsibilities of the financial market, including CFTC registration, Know Your Customer (KYC)/AML, and reporting of suspicious transactions.
However, in some European countries (such as Switzerland, France, Poland), and Singapore, regulators have explicitly classified platforms like Polymarket as "illegal gambling" and have taken measures to block them. This reflects the focus of these countries on controlling the speculative nature, potential social harm, and moral hazard of prediction markets, and therefore subjecting them to the generally stricter gambling regulatory and consumer protection frameworks.
The challenge facing Polymarket is that it must adopt customized compliance strategies tailored to the varying requirements of different jurisdictions in a global environment lacking unified regulatory standards, significantly increasing operational complexity and compliance costs. This divergence in the nature of prediction markets is not accidental; it reflects the delicate balance that regulators around the world must strike between financial innovation, consumer protection, and public morality.
3. Survival in the cracks: How does Polymarket cope with the compliance dilemma?
1. United States: Actively complying with regulations and returning through acquisitions
Faced with the CFTC's aggressive approach, Polymarket demonstrated sincerity and a proactive attitude of "substantial cooperation" during the investigation. This positive attitude and proactive communication also secured a relatively low fine for Polymarket. In January 2022, Polymarket officially signed a settlement agreement with the CFTC, acknowledging that some of its trading activities constituted binary options trading, which falls under the CFTC's regulatory scope, and agreeing to pay a fine of approximately $1.4 million.
As a key provision of the settlement, Polymarket pledged to cease providing platform services to US users and implement geo-blocking for US IP addresses starting in 2022. Subsequently, Polymarket shifted its core prediction business offshore to circumvent US regulatory restrictions and compliance risks. Notably, even though Polymarket claims to have implemented geo-blocking for US users, there are reports that some US users are circumventing restrictions through technical means such as VPNs and continuing to trade on the platform. This phenomenon reflects the limitations of IP-based geo-blocking technology, but also demonstrates the strong user base of prediction markets.
To better adapt to the US regulatory environment and prepare for its return to the US, Polymarket appointed former CFTC Commissioner J. Christopher Giancarlo as Chair of its Advisory Committee in May 2022. Reports indicate that this move aims to leverage Giancarlo's deep understanding of the CFTC's operating model and regulatory logic to help Polymarket better plan its compliance path and establish effective communication channels with regulators. This practice of hiring former regulatory officials to provide compliance consulting services is common among US companies in sectors such as pharmaceuticals and finance.
However, in November 2024, Polymarket's compliance issues resurfaced. The Federal Bureau of Investigation (FBI) raided the New York residence of Polymarket CEO Shayne Coplan, seizing his cell phone and other electronic devices but not arresting him. The FBI's primary purpose in this operation was to investigate whether Polymarket violated a previous settlement with the CFTC by allegedly failing to prevent US users from continuing to trade on the platform through methods such as VPNs.
However, with the recent inauguration of the Trump administration and its crypto-friendly regulatory policies, Polymarket's compliance prospects in the United States have seen a significant turnaround. On July 15, 2025, official reports confirmed that the US Department of Justice (DOJ) and the CFTC had concluded their investigations into Polymarket, with no new charges filed. This development marked the virtual resolution of the legal charges and regulatory uncertainty facing Polymarket since the CFTC's 2022 penalty and the FBI's 2024 enforcement action against Shayne Coplan.
Polymarket followed suit, officially announcing on July 21, 2025, its acquisition of QCEX, a CFTC-licensed derivatives exchange and clearing house, for $112 million. This strategic acquisition, hailed by Polymarket founder and CEO Shayne Coplan as a landmark move to "bring Polymarket home," aimed to provide a "fully regulated and compliant framework" for Polymarket's operations in the US market. Coincidentally, QCEX officially received its Designated Contract Market (DCM) license from the CFTC on July 9, 2025, and Polymarket completed its acquisition of QCEX 12 days later. With QCEX's existing DCM license, Polymarket was finally able to legally reopen to US users, temporarily freeing itself from compliance risks.
On the surface, Polymarket seemingly resolved its compliance issues and returned to the US market simply by acquiring the DCM-licensed QCEX. However, the changes and compromises Polymarket made to achieve compliance went far beyond this. A key element of its regulatory transformation was its shift in approach to KYC/AML. Polymarket's early strengths lay in its anonymity and decentralized trading, leveraging these attributes to rapidly establish itself and expand in the competitive prediction market. However, this operational strategy created regulatory uncertainty and market manipulation risks for the platform. With its return to the US through the acquisition of QCEX, Polymarket is likely to adopt the strict KYC/AML policies that QCEX, as a CFTC-licensed entity, must adhere to.
Specifically, licensed entities under CFTC regulation are required to conduct Customer Identification Procedures (CIPs), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD), as well as conduct ongoing transaction monitoring and suspicious activity reporting. This also signals Polymarket's ongoing tradeoff between decentralization and regulatory compliance. This shift is not only about meeting regulatory requirements but also a necessary step in Polymarket's transition from a "wild growth" model within Web3 to a regulated financial services institution.
2. Other countries and regions: Conservative strategy + proactive retreat
Compared to the United States, Polymarket's compliance strategy in other countries and regions is relatively conservative. Faced with the "gambling" classification and prohibition of prediction markets in Europe and Singapore, Polymarket did not object, but instead agreed to geo-blocking in countries like France and Singapore and withdrew from those markets.
4. What important insights does this offer Web3 entrepreneurs?
After analyzing Polymarket’s challenging compliance journey in detail, I believe other Web3 entrepreneurs should learn the following lessons:
The Web3 industry has gradually emerged from its "wild growth" phase, with more and more projects entering the public eye and mainstream market. For Web3 projects to truly grow and become mainstream, compliant operations are essential.
Whether Web3 projects can truly achieve compliance depends not only on the company's compliance strategy but also on national policy orientation and regulatory intensity. The Trump administration's rise to power and its shift in policy significantly contributed to Polymarket's eventual achievement of compliance.
3. The Polymarket story reveals a "capital-driven compliance" approach. In the early stages of a platform's operations, project owners prioritized compliance over growth, prioritizing expansion and strengthening the project to achieve economies of scale and first-mover advantage. They then leveraged these initial advantages to raise funds and, using capital leverage, proactively pursued compliance reforms through acquisitions and other means, thereby legitimizing their business and further expanding. This is not only a compliance strategy but also a business strategy.
4. The global regulatory arbitrage window for the Web3 industry is rapidly shrinking, and compliance costs are rising across the industry. As the crypto market matures, global regulators are strengthening cooperation and closing regulatory loopholes, making strategies that circumvent compliance solely through "regulatory arbitrage" or "offshore operations" increasingly ineffective. Polymarket's "grow first, then comply" approach may no longer be suitable for this new regulatory environment. Web3 projects and entrepreneurs need to have a deeper understanding and awareness of the importance of compliance. Future competition in the Web3 industry will not only be limited to technology and products, but will also be a test of compliance capabilities and capital strength.