Capital-driven Compliance? Polymarket's Global Regulatory Dilemma and Survival Strategies

Author: Gui Ruofei Lucius

"The story of Polymarket reveals a path of compliance driven by capital. In the early stages of the platform's operation, the project team prioritized growth and strengthening the project over compliance, aiming to achieve economies of scale and first-mover advantages. Subsequently, the project team leveraged the advantages accumulated in the initial phase to raise funds and actively pursue compliance transformation through acquisitions and other means using capital leverage, thereby legalizing the business and facilitating further expansion. This is not just a compliance strategy, but also a business strategy."

Traditional polling agencies in the United States never expected that they would be replaced not by advanced artificial intelligence, but by a Web3 prediction platform. In the 2024 election, survey data from various polling agencies showed that Harris had a clear advantage over Trump in terms of support rate. However, the prediction results from the Polymarket platform were vastly different, with Trump's probability of winning consistently leading Harris by a large margin. Ultimately, as Trump won the 2024 presidential election by a crushing advantage over Harris, Polymarket gained fame from this battle and began to enter the public eye.

However, behind the rapid development of Polymarket, compliance issues and regulatory pressures have always lingered, becoming the biggest obstacle to its further expansion and development. In the face of the aggressive regulatory bodies from various countries, Polymarket has carved out a unique compliance path for itself. This article will provide an in-depth analysis of Polymarket's regulatory status, compliance risks, and compliance pathways from the professional perspective of the Web3 industry and multinational compliance, for the reference of future Web3 entrepreneurs and project parties.

What is Polymarket?

Polymarket, as an emerging Web3 prediction market platform, has quickly established itself as a leader in the sector since its founding in 2020, thanks to its transparency and decentralization features based on blockchain technology. Polymarket's prediction markets cover a wide range of topics, spanning political events, capital markets, economic indicators, sports events, and even socio-cultural occurrences. The broad scope of predictable events is key to attracting a large number of users, but it also increases the complexity of its classification and regulation in different jurisdictions. Users mainly predict events on Polymarket by purchasing tokens for specific outcomes, with token prices fluctuating between $0 and $1. Therefore, the prices of Polymarket's event tokens will also reflect the collective perception of the likelihood of that specific outcome occurring in real-time.

Polymarket's core value proposition lies in transforming abstract predictive opinions into priceable and tradable digital assets through blockchain's technological innovation, allowing users to benefit from it. For example, during the 2024 election period, the price of the token betting on the event "Trump winning" rose from an initial $0.30 to $0.92, ultimately cashing out at $1 when the election results were revealed. This price change accurately captured the true shift in public opinion during the election and created significant wealth effects for users who successfully predicted the outcome.

Polymarket has rapidly risen in the Web3 prediction market space, gaining favor in the capital markets. So far, Polymarket has successfully completed two rounds of financing, raising over $70 million in total. Its investors include prominent Ethereum co-founder Vitalik Buterin and Founders Fund, led by Peter Thiel.

02 Analysis of Global Regulatory Dilemmas of Polymarket

2.1 United States: Classified as binary options, ultimately settled with the CFTC

In the U.S. market, the compliance challenges faced by Polymarket stem from the strict enforcement by the Commodity Futures Trading Commission (CFTC). In January 2022, the CFTC imposed a civil penalty of $1.4 million on Polymarket and issued a cease and desist order. Based on the relevant provisions of the Commodity Exchange Act, the CFTC believes that the "Event Contracts" offered in Polymarket's prediction market fall under the jurisdiction regulated by the Commodity Exchange Act. The Commodity Exchange Act clearly states that the CFTC has the authority to regulate the "futures, options, and swap markets" (Future delivery, Security futures product, or Swap).

Therefore, when prediction markets allow users to bet on events such as election outcomes and economic indicators, the CFTC tends to view this product as a binary option or swap contract, thus bringing it under its exclusive jurisdiction over the derivatives market. In other words, the CFTC considers the nature of the "event contracts" offered by Polymarket to fall under the jurisdiction of financial derivatives rather than gambling or betting activities. As a result, the core of the CFTC's allegations is that Polymarket operated an unregistered derivatives trading platform that failed to register with the CFTC as a Swap Execution Facility or Designated Contract Market as required by the Commodity Exchange Act.

In addition, the prediction market where Polymarket is located is also facing a "tug-of-war" between federal and state regulators. The CFTC is attempting to exert exclusive jurisdiction over prediction markets through the Commodity Exchange Act, considering them as "event contracts." However, some state gambling regulators in the U.S. view prediction markets as "illegal gambling" and have filed lawsuits against them. For example, on March 27, 2025, the New Jersey Division of Gaming Enforcement issued a cease-and-desist order to Polymarket's direct competitor Kalshi, prohibiting it from offering sports betting services without a license.

In this regard, Kalshi has engaged in a protracted legal struggle with gambling regulators in places like New Jersey. Although Judge Edward Kiel of the U.S. District Court for New Jersey determined that the sports event contracts offered by Kalshi fall under the exclusive regulatory authority of the CFTC, ruling that the New Jersey regulatory agency must cease its interference with Kalshi's normal operations, this dispute is still not definitively resolved. This jurisdictional dispute between federal and state authorities will further exacerbate the uncertainty in the regulatory environment for prediction markets in the United States.

Therefore, for platforms like Polymarket, even if they obtain federal-level permission, they may still face legal challenges and litigation risks at the state level. This situation of "dual regulation" coexisting with "regulatory vacuum" not only increases the compliance costs for the platform but also hinders its comprehensive expansion in the U.S. market.

2.2 Europe: Classified as gambling, added to the blacklist

However, Polymarket's compliance challenges are not limited to the United States. In other jurisdictions around the world, Polymarket also faces severe regulatory pressure. In the European Union, the implementation of the Markets in Crypto-Assets Regulation (MiCA) establishes a unified regulatory framework for crypto asset service providers (CASPs) and covers asset-referenced tokens (ARTs), electronic money tokens (EMTs), and other crypto assets not covered by existing financial services legislation. However, the MiCA regulation does not explicitly include prediction markets within its regulatory scope, leaving room for countries to independently regulate based on their gambling laws. Therefore, even though the MiCA regulation provides a unified authorization framework for crypto assets services in the EU, prediction market platforms still need to contend with fragmented regulation across European countries.

In Europe, from November 2024 to January 2025, regulatory agencies from several countries have successively taken regulatory measures against Polymarket. The Swiss Gambling Regulatory Authority blacklisted Polymarket.com on November 26, 2024, on the grounds that its prediction market was considered to violate local gambling and sports betting regulations. The French National Gaming Authority announced on November 29, 2024, that after an investigation, Polymarket agreed to implement geographical restrictions for French users, as its offered "gaming products" may violate French law.

According to reports, this action by the French regulatory authorities is partly due to the regulatory attention raised after the French trader mentioned above made huge bets on the Polymarket platform regarding the US elections. Subsequently, on January 8, 2025, the Polish Ministry of Finance also blocked access for its residents to Polymarket.com on the grounds of "providing gambling services in violation of Polish law."

It can be seen that European countries generally adopt a conservative and prudent regulatory attitude towards prediction markets led by Polymarket, with most regulatory agencies viewing prediction markets as gambling activities and enforcing strict regulations and restrictions based on their respective gambling laws.

2.3 Singapore: Violation of Two Acts

Singapore's regulatory framework for prediction markets combines the Payment Services Act and the Gambling Control Act 2022, addressing Polymarket from different angles. Firstly, the Monetary Authority of Singapore strictly licenses and regulates digital payment token service providers under the relevant provisions of the Payment Services Act. The MAS believes that the Polymarket platform operates digital payment token services without a license and emphasizes that it poses significant anti-money laundering/counter-terrorism financing (AML/CFT) risks, while also lacking investor protection mechanisms and user dispute resolution mechanisms.

At the same time, the Singapore Gambling Regulatory Authority has classified the Polymarket platform as an illegal gambling website and has blocked it under the Gambling Control Act 2022. The Gambling Control Act 2022 clearly states that only state-licensed platforms (such as Singapore Pools) are allowed to provide online gambling services in Singapore. Therefore, Polymarket faces dual compliance challenges in Singapore, having to comply with the licensing and regulatory requirements for digital payment token services under the Payment Services Act, while also avoiding violations of the strict entry restrictions imposed by the Gambling Control Act 2022 on the gambling industry.

From the above comparison of regulatory jurisdictions, it can be clearly observed that there is a significant "financialization" and "gamblization" dichotomy in the regulation of prediction markets by global regulatory agencies. For example, the CFTC in the United States tends to view prediction markets as "event contracts" under the Commodity Exchange Act (CEA), attempting to bring them under the regulatory framework for financial derivatives such as options and swaps. This classification acknowledges the potential value of prediction markets in information discovery and risk hedging, but also requires them to bear the strict regulatory responsibilities of financial markets, including CFTC registration, KYC/AML, and reporting suspicious transactions.

However, in some European countries (such as Switzerland, France, and Poland) and Singapore, regulators have explicitly classified platforms like Polymarket as "illegal gambling" and have taken blocking measures. This reflects these countries' greater emphasis on controlling the speculative nature of prediction markets, potential social harm, and moral risk, and thus placing them under typically stricter gambling regulations and consumer protection frameworks.

The challenges faced by Polymarket lie in the fact that it must adopt customized compliance strategies to meet the different requirements of various jurisdictions in a global environment lacking unified regulatory standards, which undoubtedly greatly increases the complexity and compliance costs of its operations. This difference in the nature of prediction market recognition is not coincidental; it reflects the delicate balance that regulatory agencies in various countries strike between financial innovation, consumer protection, and public morality.

03 Surviving in the Cracks, How does Polymarket Respond to Compliance?

3.1 United States: Actively compliance, returning through acquisitions.

In the face of the aggressive CFTC, Polymarket showed sincerity during the investigation process and displayed a positive attitude of "substantive cooperation." A good attitude and active communication also helped Polymarket secure a relatively low fine. In January 2022, Polymarket officially signed a settlement agreement with the CFTC, acknowledging that some of its trading activities fall under the CFTC's regulatory scope of "binary options trading" and agreeing to pay a fine of approximately $1.4 million.

As one of the key terms of the settlement agreement, Polymarket** promises to stop providing platform services to U.S. users from 2022** and to geographically block U.S. IP addresses. Subsequently, Polymarket has shifted its core prediction business offshore to operate in order to circumvent regulatory restrictions and compliance risks within the United States. It is noteworthy that even though Polymarket claims to have implemented geographic restrictions on U.S. users, reports indicate that some U.S. users are circumventing these restrictions through VPNs and other technical means to continue participating in platform trading. This phenomenon reflects, on one hand, the limitations of IP address-based geographic blocking technology, and on the other hand, demonstrates the solid user base of the prediction market.

To better adapt to the U.S. regulatory environment and prepare for a return to the United States, Polymarket appointed former CFTC Commissioner J. Christopher Giancarlo as the chairman of its advisory board in May 2022. Related reports indicate that this move aims to leverage Giancarlo's deep understanding of the CFTC's operational model and regulatory logic to help Polymarket better plan its compliance path and establish effective communication channels with regulators. This "hiring former regulatory staff for compliance consulting services" approach is quite common among companies in fields such as pharmaceuticals and finance in the United States.

However, in November 2024, the compliance issues surrounding Polymarket resurfaced. The Federal Bureau of Investigation (FBI) conducted a raid on the New York residence of Polymarket CEO Shayne Coplan, seizing his phone and other electronic devices, but did not arrest him. The main purpose of the FBI's actions was to investigate whether Polymarket had violated a previous settlement agreement reached with the CFTC, as Polymarket was suspected of failing to prevent U.S. users from continuing to trade on the platform using methods such as VPNs.

However, recently, with the rise of the Trump administration and a regulatory direction that is friendly to cryptocurrencies, Polymarket's compliance prospects in the United States have seen a significant turnaround. On July 15, 2025, official reports confirmed that the U.S. Department of Justice (DOJ) and the CFTC have officially concluded their investigation into Polymarket, and no new charges have been filed. This development marks a significant resolution to the legal charges and regulatory uncertainties that Polymarket has faced since the CFTC's penalties in 2022 and the FBI's enforcement actions against Shayne Coplan in 2024.

Polymarket also followed closely behind, officially announcing on July 21, 2025, the acquisition of QCEX for $112 million, a derivatives exchange and clearinghouse that has been licensed by the CFTC. This strategic acquisition was hailed by Polymarket founder and CEO Shayne Coplan as a landmark move to "bring Polymarket home," aimed at providing a "fully regulated and compliant framework" for Polymarket's operations in the U.S. Interestingly, QCEX officially received its Designated Contract Market (DCM) license from the CFTC on July 9, 2025, and just 12 days later, Polymarket completed its acquisition of QCEX. With QCEX's ready-made DCM license, Polymarket is finally able to legally reopen to U.S. users and temporarily alleviate concerns about compliance risks.

On the surface, Polymarket seems to have solved its compliance issues and returned to the U.S. market simply by acquiring QCEX, which holds a DCM license. However, the changes and compromises made by Polymarket for compliance go far beyond this. Among these, Polymarket's shift in attitude towards KYC/AML is key to its compliance transformation. The early characteristics of Polymarket were its "anonymity" without KYC and the "decentralization" of transactions. With these features, Polymarket quickly established a foothold and continued to expand in the fiercely competitive prediction market. However, such operational strategies brought the platform risks of "regulatory uncertainty" and "market manipulation." As Polymarket re-enters the U.S. through the acquisition of QCEX, it is likely that Polymarket will adopt QCEX's strict KYC/AML policies that must be followed by CFTC-licensed entities.

Specifically, entities licensed under CFTC regulation are required to conduct Customer Identification Programs (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD), as well as ongoing transaction monitoring and suspicious activity reporting. This also indicates that Polymarket needs to constantly weigh the balance between decentralization and regulatory compliance. This shift for Polymarket is not only to meet regulatory requirements, but also an inevitable result of its transformation from the "wild growth" model of Web3 to a regulated financial services institution.

3.2 Other countries and regions: Conservative strategy + active retreat

Compared to the United States, Polymarket's compliance strategy in other countries and regions is relatively conservative. In the face of the classification of prediction markets as "gambling" in Europe and Singapore, as well as prohibitive requirements, Polymarket did not raise any objections but agreed to implement geographic restrictions in countries such as France and Singapore, exiting the local market.

04 What important insights are there for Web3 entrepreneurs?

After a detailed analysis of Polymarket's bumpy compliance path, the author believes that other Web3 entrepreneurs should at least learn the following lessons from it:

1 The Web3 industry has gradually moved away from the stage of "barbaric growth", and more and more projects are beginning to enter the public eye and mainstream market. For Web3 projects to truly grow and become strong, and to move towards the mainstream, compliance operations are an inevitable trend.

2. Whether Web3 projects can truly achieve compliance depends not only on the compliance strategies of the enterprises, but is also closely related to the country's policy orientation, regulatory intensity, and other factors. Polymarket's ability to ultimately operate in compliance is greatly aided by the rise of the Trump administration and the shift in policies.

3. The story of Polymarket reveals a "capital-driven compliance path". In the early stages of platform operation, the project party prioritized scaling and strengthening the project over compliance, gaining economies of scale and first-mover advantages. The project party then leveraged the advantages accumulated in the initial phase to raise funds, actively undertaking compliance transformation through acquisitions and other means using capital leverage, thus achieving business legalization and further expansion. This is not only a compliance strategy but also a business strategy.

4 The global regulatory arbitrage window for the Web3 industry is rapidly narrowing, and the compliance costs for the entire Web3 industry are continuously increasing. As the cryptocurrency market matures, global regulatory agencies are strengthening cooperation and plugging regulatory loopholes, making it increasingly difficult to evade compliance through strategies like "regulatory arbitrage" or "offshore operations." Polymarket's approach of "grow first, comply later" may no longer be applicable in the new regulatory environment. Project teams and entrepreneurs in the Web3 space need to have a deeper understanding and recognition of the importance of compliance. In the future, competition in the Web3 industry will not only be confined to technology and products but will also be a contest of compliance capabilities and capital strength.