Is the gameplay of Polymarket gambling? Do Chinese players have legal risks?

Original Author: Lawyer Liu Zhengyao

Reprinted: White55, Mars Finance

Introduction

Recently, prediction markets represented by Polymarket have become very popular, and some players have already entered the market domestically, with reports of people making money. As a lawyer in the Web3 field, a friend asked me whether Polymarket is actually playable and whether there are legal risks of gambling involved. We will analyze this in this article.

1. What is a prediction market and Polymarket?

(1) Prediction Market

The so-called “prediction market” can be simply understood as a platform that allows users to predict future events that have not yet occurred, and to place bets and trade on them.

Prediction markets are not a novel concept or gameplay; as early as 2014, there was a political (or policy) prediction platform called Predictit. In 2015, Augur, based on the Ethereum public chain, became one of the earliest decentralized prediction market platforms. Also in 2015, the decentralized platform Gnosis, which was deployed on the blockchain, among others, belonged to the early products of prediction markets. However, due to the immaturity of the early market and other reasons, these platforms did not grow particularly large, resulting in them not entering the relatively “mainstream” public view.

(II) Introduction to Polymarket

Polymarket is a prediction market platform deployed on a blockchain network (Polygon chain, a type of public chain). Users can “bet/predict” on future events (such as political elections, legislative outcomes, sports events, cultural events, etc.) by buying and selling “contract shares” that represent the probability of a certain outcome occurring, reflecting the market's view on that outcome. The platform's general information is as follows: it was established in 2020, headquartered in New York, USA; it is currently one of the “largest prediction markets in the world”; it uses cryptocurrencies/stablecoins (such as USDC) for transactions on the blockchain.

(Image source: Screenshot from Polymarket official website)

(3) The Operating Mechanism of Polymarket

Let's illustrate how Polymarket works with a simple example:

1. Choose a market (event): for example, “Will the X bill pass into law in 2026?” or “Will Haruki Murakami win the Nobel Prize in Literature?” etc.

2. Buy and sell “shares”: In this market, you can buy a share of an option (for example, “will” or “will not”), with prices typically ranging from 0 to 1 dollars, similar to probabilities; a higher price indicates that the market believes the option is more likely to occur.

3. You can buy or sell before the event result comes out: If you buy a certain option early and, as new information comes in, the market sees its probability of occurrence positively, the price may rise, allowing you to sell for a profit. Some see it as a mix of “betting + trading.”

4. Settlement after the event results are determined: If the event result is true, those who bought shares of the “will happen” option will receive corresponding returns; if the result is false, they may incur losses. The entire process is executed transparently through smart contracts and blockchain, eliminating the possibility of human intervention.

5. Blockchain / Stablecoin Operation: Polymarket operates on the Polygon chain (an Ethereum Layer 2 solution) and trades using the USDC stablecoin, which facilitates global participation, transparency, and fairness.

6. Is the prediction market gambling?

This is a common concern among many players, especially Chinese players. Although blockchain can be decentralized, users on the blockchain network are from their own countries, which means there are corresponding jurisdictional laws. For Chinese citizens, based on the principle of nationality, if a crime is committed, even if physically overseas, they will still be subject to domestic criminal law. Therefore, it is very important to assess whether the prediction market has any criminal risks.

(1) Gambling Crimes in Chinese Criminal Law

The so-called “gambling”, according to the definition by the leading scholar in criminal law, Professor Zhang Mingkai, means “the act of gambling or betting with property based on the chance of winning or losing” (Zhang Mingkai, “Criminal Law”, Sixth Edition, Legal Publishing House, Page 1414). The term “chance of winning or losing” refers to a result that cannot be artificially predicted or controlled, depending on random factors. Regarding gambling crimes, Chinese criminal law stipulates three charges: gambling crime, operating a casino crime, and organizing or participating in overseas gambling crimes. The first two charges are commonly encountered in practice.

Gambling offenses require the intention to profit, engaging in gambling with a group, or making a profession out of gambling; the crime of operating a casino mainly punishes the act of setting up a casino, which specifically involves providing a venue, space, or gambling equipment for gambling, establishing methods and rules for gambling, organizing or controlling gambling activities, and conducting gambling operations.

For predictive markets, in addition to the aforementioned general analysis, an examination of whether it constitutes gambling crime under Chinese criminal law can be conducted based on the constituent elements standards outlined in the “Opinions on Several Issues Concerning the Application of Law in Handling Cases of Online Gambling Crimes” implemented by the “Two Highs and One Ministry” on August 31, 2010.

(2) Does Polymarket constitute a gambling crime under Chinese law?

For Polymarket, its model constitutes gambling under Chinese law.

First of all, Polymarket allows users to place predictions and bets (buy or score) on uncertain future events/activities, which fall under the category of “random wins and losses” under Chinese law.

Secondly, users bet using real assets. Virtual currencies, especially stablecoins like USDT and USDC, have been recognized by judicial authorities in mainland China for their property attributes in criminal cases. Therefore, even if users stake with virtual currencies like USDC, it still falls under the theoretical framework of “gambling with property” as per Chinese criminal law.

Finally, gambling must also meet the condition of “having both losses and wins.” On Polymarket, those who bet correctly profit, while those who bet incorrectly lose, which fully complies with the aforementioned condition.

Therefore, we can conclude that the gameplay of Polymarket is classified as gambling under Chinese law without any obstacles. However, when considering whether it constitutes gambling crimes or the crime of operating a casino, it is necessary to combine the aforementioned judicial interpretations and departmental regulations (“Regulations on the Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (I)”). For example:

1. For gambling crimes, one of the following must be satisfied:

(1) Organizing gambling with three or more people, and the amount of profits obtained exceeds five thousand yuan;

(2) Organizing gambling with three or more people, with a total bet amount of over fifty thousand yuan;

(3) Organizing gambling with more than three people, with a total number of participants exceeding twenty;

(4) Organizing more than ten citizens of the People's Republic of China to gamble abroad and collecting kickbacks or referral fees from it.

2. For the crime of operating a casino, one of the following must be met:

(1) Establishing a gambling website and accepting bets;

(2) Establishing a gambling website and providing it to others to organize gambling;

(3) Acting as an agent for gambling websites and accepting bets;

(4) Participating in profit sharing from gambling websites.

For the aggravated circumstances of the crime of operating a casino (such as the total gambling funds reaching more than 300,000 yuan or the total number of participants exceeding 120, etc.), you can refer to the provisions of the first article of the aforementioned judicial interpretation, and Lawyer Liu will not elaborate further.

For users in mainland China who participate in Polymarket, it is especially important to pay attention to the aforementioned first point regarding the elements of the “gambling offense” to prevent involvement in criminal risks. In addition, individuals or institutions in mainland China that promote, operate, or provide payment channels also face corresponding criminal risks.

3. Are there any other legal risks for Chinese users in the prediction market?

In fact, from a probabilistic perspective, most people will not encounter any criminal legal risks in their lifetime. This leads some who are overly optimistic to mistakenly believe that if nothing has happened to others, how could it possibly happen to them? They are bound to be caught by the police? However, as a criminal lawyer, Lawyer Liu still advises everyone to never touch the legal red lines (criminal law). In addition to criminal risks, based on the nature of Polymarket, there may also be the following risks in China:

(1) Administrative Legal Risks

As we all know, in our country, if gambling does not constitute a crime, there will still be administrative risks of public security penalties. Article 82 of the “Public Security Administration Punishment Law” states: “Those who provide conditions for gambling for profit, or participate in gambling with a large amount of stakes, shall be detained for less than 5 days or fined less than 1000 yuan; if the circumstances are serious, they shall be detained for more than 10 days but less than 15 days, and fined more than 1000 yuan but less than 5000 yuan.”

(2) Political Risk

Even without the risks of gambling crimes or violations of administrative laws, Chinese users need to be cautious about another legal risk: the illegal and criminal risks of provoking trouble arising from political risks. Specifically, it is prohibited to mock political figures in mainland China (with the exception of foreign political figures), but betting on political figures or political events on the Polymarket platform is difficult to be tolerated by the laws of mainland China.

4. Written at the end

From a positive and optimistic global Web3 perspective, the highlight of prediction markets, represented by Polymarket, lies in its real-time, global, and decentralized (or partially decentralized) characteristics, enabling it to serve as a financial tool for “predicting the future.” However, from a conservative perspective, there are also many points regarding legality, regulation, technology, and liquidity that Polymarket must be cautiously approached, and friends must pay attention to and mitigate these risks.

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Author: Lawyer Liu Zhengyao