The U.S. Commodity Futures Trading Commission (CFTC) has issued warnings to Polymarket and other offshore crypto betting platforms about the potential for enforcement actions if they continue to offer unregistered derivatives contracts to U.S. customers. Speaking at a Georgetown Psaros Center event, CFTC Chair Rostin Behnam emphasized that the agency is actively monitoring offshore activity, particularly in platforms that expose U.S. users to unregulated derivatives.
Monitoring Offshore Platforms
Behnam reiterated that the CFTC is focused on ensuring that platforms offering crypto derivatives comply with U.S. laws. “We are observing any activity that’s occurring offshore and is providing exposure to U.S. customers, and we want to make sure it is done legally and within the bounds of the law,” Behnam explained. He also warned that if a platform like Polymarket has a substantial presence in the U.S. but fails to meet the registration requirements, the CFTC will take legal action.
Polymarket and Previous Violations
This is not the first time Polymarket has faced scrutiny from the CFTC. In January 2022, the platform settled with the agency for $1.4 million after being accused of offering over 900 event-based binary options markets without proper registration. The latest warning comes as blockchain-based prediction markets, like Polymarket, gain attention in the run-up to the 2024 U.S. presidential election.
Kalshi Lawsuit and Legal Battles
Despite a recent legal setback in the CFTC’s lawsuit against blockchain prediction platform Kalshi, where a court ruled that the agency overstepped its authority in trying to halt Kalshi’s election markets, the CFTC remains concerned about the potential harm to public interest. This led to a temporary halt on Kalshi’s election markets after a stay order was issued by an appeals court on September 12.
Surge in Election Betting
Betting markets on the 2024 presidential election have surged, with Polymarket’s market for the “Presidential Election Winner 2024” attracting over $930 million in bets. Meanwhile, its “Popular Vote Winner 2024” market has seen $208 million placed in wagers.
Risk of Manipulation
The CFTC has also raised concerns about the susceptibility of prediction markets to manipulation. In a recent filing against Kalshi, the agency pointed out incidents of traders attempting to manipulate contracts, including one related to Vice President Kamala Harris’ potential 2024 presidential run. Additionally, a fabricated poll on PredictIt, which falsely showed musician Kid Rock leading Senator Debbie Stabenow in a senate race, caused significant disruptions in contract pricing for Stabenow’s reelection.
Future of Prediction Markets
Despite ongoing regulatory battles, Polymarket continues to expand its influence. Last month, Bloomberg LP revealed plans to incorporate Polymarket’s election odds data into its widely used Terminal, further solidifying Polymarket’s position as a leader in blockchain-based prediction markets operating on the Polygon network.
As the CFTC continues to push for greater regulation and transparency in crypto betting platforms, the future of decentralized prediction markets remains under intense scrutiny.
