Crypto forecast platform Polymarket to pay a penalty of $1.4M

Crypto betting platform Polymarket was directed by the Commodity Futures Trading Commission or CFTC to pay a fine of $1.4 million on 3rd January 2022 for its failure to obtain designated contract market or registration as a swap execution facility [SEF]. In accordance with the press release, this is mandatory to offer off-exchange event-based binary options contracts and provide users with full refunds as the firm failed to meet the requirements with the regulator.

In addition to the fine, the order also requires the New York-based firm [the operating name for Blockratize, Inc.] to wind down all of its markets that do not comply with the Commodity Exchange Act 9 [CEA] and applicable CFTC regulations, and cease and desist from violating the CEA and CFTC regulations, as charged. Reading along the same line, acting Director of Enforcement Vincent McGonagle stated,

“All derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space. Market participants should proactively engage with the CFTC to ensure that our markets remain robust, transparent, and afford customers the protection provided under the CEA and our regulations.”

Polymarket- Background overview

The CFTC discovered on June 2020, that Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts, known as “event markets.” As per the order, through its website, the crypto market platform offered public trading on binary options contracts related to events like “Will Trump win the 2020 presidential election?”. Apart from that, the order also finds that Polymarket has offered more than 900 separate event markets since 2018 while deploying smart contracts hosted on a blockchain to operate the markets.  

The order also noted that such event market contracts, each of which is composed of a pair of binary options, constitute swaps under the CFTC’s jurisdiction, and therefore can only be offered on a registered exchange in accordance with the CEA and CFTC regulations. As stated in the order, the CFTC recognizes Polymarket’s substantial cooperation with the Division of Enforcement’s investigation of this matter in the form of a reduced civil monetary penalty.