The Commodity Futures Trading Commission (CFTC) settled charges against a company called Blockratize, doing business as Polymarket, regulatory violations.
Specifically, the CFTC is charging the New York-based firm with offering off-exchange event-based binary options contracts and failure to obtain designation as a designated contract market (DCM) or registration as a swap execution facility (SEF).
Polymarket must pay a $1.4 million civil monetary penalty. It also must wind down all markets displayed on Polymarket.com that do not comply with the Commodity Exchange Act (CEA) and applicable CFTC regulations. Further, it must cease and desist from violating the CEA and CFTC regulations, as charged.
“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,” Acting Director of Enforcement Vincent McGonagle said. “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.”
The CFTC said that starting in June 2020, Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts, known as “event markets.” Through its website, Polymarket, the company offered the public the opportunity to “bet on your beliefs” by buying and selling binary options contracts related to an event taking place in the future that are susceptible to a “yes” or “no” resolution. This included questions such as if $ETH (Ethereum) will be above $2,500 on July 22; if the 7-day average COVID-19 case count in the United States will be less than 15,000 for the day of July 22; if Trump will win the 2020 presidential election.
Polymarket offered more than 900 separate event markets since its inception while deploying smart contracts hosted on a blockchain to operate the markets.
However, according to the order, 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.
Polymarket cooperated with the Division of Enforcement’s investigation of this matter. The Division of Enforcement staff members responsible for this case are Nina Ruvinsky, Joseph Platt, Heather Dasso, Allison Passman, Scott Williamson, and Robert Howell.