Polymarket Fined $1.5m By Market Regulator
The CFTC has taken regulatory action against Polymarket (registered with the commission as Blockratize LLC based in Delaware).
Why Polymarket Was Fined
The firm was accused of providing event-based binary options contracts for Americans without an approved license. The commission remarked that Polymarket would need a designated contract market (DCM) license or a swap execution facility (SEF) license before offering such event-based contracts.
The CFTC filed the charge against the company on December 4 and fined the firm a sum of $1.5m. The CFTC also disclosed a renewed commitment towards tracking down all companies providing unapproved offerings for their customers. Polymarket has since announced that its users will no longer access this market within the next ten days, and all affected users will get their funds back before this month ends.
However, the company affirmed that it would continue its other operations without contravening the CEA or other market rules. Part of the company’s announcement relating to CFTC’s announcement states that “we are an experienced team and will continue to learn. We have learned from this incident and will ensure that we don’t contravene the market’s compliance rules from now on.”
The Moneymaking Event-Based Contract Services
Part of the CFTC’s statement revealed that Polymarket began its binary contracts offer around July 2020. The event-based agreement allowed any user to bet on various events such as the price of a digital asset at a specific date, the percentage rise of Omicron cases by a particular date, or the US state governorship election results.
Between 2020 and 2021, Polymarket had offered over 950 event-based contracts, hosting each of them with the blockchain technology as a smart contract. CFTC’s enforcement director, Vincent McGonagle, disclosed that “any derivatives market can use any technology as long as it is within the confines of the law. This is even more applicable to markets in the DeFi sector.”
McGonagle further said, “market players should always keep us abreast of their offerings. It will strengthen our market and ensure transparency, with the clients protected by law, especially the CEA.”
Binary Market Operations In The US
The US remains one of the few nations where binary market operators are still licensed. Many other nations have proscribed the market over continuous fraud operations by the market players. But it has to be noted that there are strict regulations over the activities of America’s binary market players.
That’s why only a few of them are legally allowed to operate. It is also worth noting that the top crypto exchange, FTX, started as a binary market player though outside the US as it couldn’t oblige with the CFTC’s tight regulations on binary market players.
Polymarket is not the first company fined by CFTC; Tether and Bitfinex were also charged for non-compliance with the market regulations. CFTC fined USDT issuer, Tether, $42m, while Bitfinex was fined $1.6m (Bitfinex owns the popular crypto exchange, Bitfinex exchange). The commission charged Tether with non-compliance to the CEA, while Bitfinex was fined for operating commodity transactions unrelated to exchange operations.