Event-betting platform Polymarket slapped with $1.4m fine
The crypto event-betting platform Polymarket has been slapped with a $1.4m fine as part of a settlement with a US financial watchdog.
The US’s Commodity Future Trading Commission (CFTC) accused Polymarket, which lets users bet on the outcome of political, economic and other real world events, of having operated an “illegal unregistered or non-designated facility” since June 2020.
The settlement requires Polymarket to pay a fine and wind down all markets displayed on the company’s website that do not comply CFTC regulations.
“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,” said Acting Director of Enforcement Vincent McGonagle. “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.”
In a statement Polymarket told City A.M. it was “encouraged” by its “learnings through this experience” and said the company has “built out an exceptional compliance team and robust internal practices and procedures, which will ensure that compliance remains an integral pillar” of business going forwards.
“DeFi presents unique challenges to both builders and regulators” the statement continued, adding that the company plans to release CFTC compliant products in future.
The fine demonstrates that US regulators are prepared to take decentralized exchanges to task for putting investors at risk. David Carlisle, the Director of Policy and Regulatory Affairs at blockchain analytics company Elliptic, said the judgement is a sign that regulators are preparing to “ramp up” oversight of crypto markets in 2022.
“By announcing an enforcement action against a DeFi market on the first working day of 2022, the CFTC is sending a powerful message: US regulators will not tolerate DeFi becoming a haven for regulatory arbitrage,” said Carlisle. “DeFi innovators should expect that the CFTC and other US regulators will significantly ramp up scrutiny in 2022, and more enforcement actions are certainly on the way this year.”
“DeFi projects can front-run additional regulatory scrutiny and avoid adverse consequences by proactively ensuring compliance arrangements are built into DeFi apps as they are launched,” added Carlisle, adding that recent guidelines from the Financial Action Taskforce could form the basis of crypto regulation globally.
According to Elliptic total capital locked in DeFi services has grown by more than 1,700 per cent over the past year to $247bn. Despite the wild growth of the DeFi sector projects are difficult to regulate because of their founders are often anonymous and companies have a decentralized structure.
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