Polymarket’s operations are highly intuitive—creating “markets” for trending events

What exactly does Polymarket, the prediction market platform application, do?

What was its original premise?—Using money to test the accuracy of one’s predictions

Dear readers, imagine a “casino” of sorts: here, you do not bet on soccer scores or guess the rank of poker cards; instead, people use real money to predict “how the world will unfold.”

“Will Elon Musk complete the payment functionality on the X platform by the end of October?” “Will the Federal Reserve cut interest rates by more than 75 basis points this year?” “Can the first-week box office revenue of a certain popular movie exceed USD 500 million?”

This special “casino” is our subject today—Polymarket. However, do not rush to label it a “casino,” as such a characterization may be overly simplistic and even unjust. In essence, Polymarket is a decentralized information prediction market built on blockchain technology.

In plain terms, it is a “global event oracle” where voting is conducted with money.

How does it “work”?—Like buying stocks, but betting on “outcomes”

Polymarket’s operations are highly intuitive—creating “markets” for trending events.

For example, in the market “Will Brazil win the 2026 FIFA World Cup?” there are two options: “Yes” and “No.” Each option resembles a stock, with its price fluctuating between USD 0 and USD 1, representing the market’s assessed probability of the event occurring. If you firmly believe that Brazil will win the championship, you can buy “Yes.” Suppose the current price of “Yes” is USD 0.60 (indicating that the market assigns a 60% probability to this outcome). By spending USD 60, you can purchase 100 shares of “Yes.” If Brazil ultimately wins the championship, each share of “Yes” will settle at USD 1, making your 100 shares worth USD 100, for a net profit of USD 40. Conversely, if your prediction proves incorrect, the price of “Yes” drops to zero, and you lose your investment.

Furthermore, throughout this process, you may buy and sell these “probability shares” at any time based on news, intuition, or other information, similar to trading stocks, and thereby realize profits.

The key point is that all such transactions are conducted in crypto assets and recorded on the blockchain, ensuring transparency and immutability. This functions as a global, ongoing “public opinion poll” expressed through monetary commitments, where prices aggregate the collective wisdom of thousands of participants, often predicting event outcomes more accurately than traditional experts.

How does it generate revenue?—Revenue generation is its primary objective.

1. Fee-based model:The platform charges fees to users who realize trading profits, which constitutes the platform’s principal and most stable source of revenue. When a user places a bet in a prediction market and ultimately realizes a profit, the platform deducts approximately 1–2% of the profit amount as a fee.

2. One-time creation fee charged to market creators:Users who wish to initiate a new prediction topic (market) must pay a fixed fee. This practice not only generates direct revenue but also establishes a modest economic threshold that effectively filters creation requests, thereby safeguarding the quality of content on the platform.

 

From Unregulated Growth to Regulatory Oversight: Polymarket’s Pioneering Journey and Regulatory Intervention

Opportunity Coexisting with Disorder—When “Prediction” Crosses Ethical Boundaries

In its early stages, Polymarket’s core appeal lay in the premise that “anything can be predicted.” Such extreme freedom quickly gave rise to markets operating at the margins of ethics and law. Among the most conspicuous were those involving predictions related to personal safety and public health tragedies.

For example, the platform briefly hosted markets concerning questions such as “whether a certain public figure would suffer harm” and “whether a deadly virus would infect a specified number of people by a certain date.” The existence of such markets meant that participants could profit from others’ misfortune or even death, instantly igniting public outrage and drawing the attention of regulators.

From a legal perspective, such markets violate at least three fundamental prohibitions:

  • Violation of public order and good customs:The legal systems of all civilized societies are founded on the maintenance of basic public order and good customs. Wagering on the lives and health of others is not only callous but may also give rise to serious moral hazards (i.e., the risk that individuals might actively precipitate tragedies to secure profits). This conduct far exceeds the bounds of financial innovation and infringes upon the most fundamental protections upheld by law.
  • Blatant Exposure of the “Gambling” Nature:When the subject matter of predictions is tied to public interest and personal safety, Polymarket’s self-justifying guise of “information aggregation” is completely stripped away. In the eyes of regulators, this is less a “prediction” and more a naked “betting” on human depravity, indistinguishable from illegal gambling.
  • A Public Relations Disaster:After such markets were exposed by the media, they triggered a massive public outcry. This forced regulators to act swiftly and take a clear stance. Agencies such as the U.S. Commodity Futures Trading Commission (CFTC) could no longer stand by under the pretext of “observing emerging technologies.”

When prediction markets involving challenges to social bottom lines, such as personal safety, emerged on the Polymarket platform, the “wild growth” of this technology finally touched an invisible boundary. These markets not only sparked strong public skepticism but also served as a mirror, reflecting the social responsibilities and legal frameworks that Web3 innovation must confront in the real world.

I. Regulatory Intervention: Drawing Boundaries for Innovation

These transgressions prompted regulatory action. Although Polymarket is built on blockchain and emphasizes its “decentralized” nature, its core operating team, as an identifiable entity, and the services provided by the platform, which have the substance of financial contracts, make it impossible to evade regulatory scrutiny.

The core view of regulators is that, regardless of how technological forms evolve, the essence of financial activities remains unchanged.

When an activity involves raising funds from the public, exhibits trading characteristics similar to futures or options, and concerns broad public interests, it must be brought within the scope of existing financial regulation to ensure market fairness and transparency, and to prevent potential fraud and systemic risks. Therefore, regulatory intervention is not intended to negate innovation itself, but to establish necessary rules for this “exploration” and clearly define the prohibited areas for innovation.

II. Moving Toward Compliance: From “Testing Ground” to “Established Player”

Faced with regulatory pressure, Polymarket’s choice was not confrontation, but transformation.

Regulators have pointed out a clear path for such innovations: to continue operating legally, they must refer to the standards of traditional financial markets, apply for the corresponding operational licenses, and be fully incorporated into the regulatory system. This means the platform must undergo fundamental restructuring:

  • Establish a rigorous mechanism for reviewing underlying assets:Thoroughly eliminate prediction topics that involve illegality, immorality, or susceptibility to manipulation, thereby ensuring the compliance of market content.
  • Construct comprehensive investor protection measures:Including risk management systems such as anti-money laundering (AML) and know-your-customer (KYC) procedures, to protect participants from fraud.
  • Enhance operational transparency and reliability:As a regulated entity, its operations must meet higher standards for information disclosure and regulatory requirements.

This “compliance-oriented” transformation essentially places reins on the wild horse of innovation, guiding it to run on a track that safeguards financial stability and consumer rights.

III. Insights from the Polymarket Platform

The trajectory of Polymarket clearly demonstrates that the community ideal of “code is law” cannot fully proceed as envisioned in reality. The “disruptive” nature of technology does not mean it can naturally exist in a regulatory vacuum.

The true challenge and opportunity lie in proactively integrating compliance by design into the underlying architecture of decentralized applications. Sustainable innovation is no longer about finding loopholes in rules, but rather actively exploring how to leverage blockchain technology to enhance efficiency, transparency, and inclusivity while adhering to the core principles of the existing legal framework, thereby making genuine contributions to society.

This requires project initiators to possess a stronger awareness of legal risks from the outset, treating compliance as a prerequisite for product design rather than a remedial measure after the fact.

 

Insights from the Polymarket Platform—From Passive Response to Proactive Embrace

For prediction market platforms aspiring to serve the global market, the case involving Polymarket and the U.S. Commodity Futures Trading Commission (CFTC) serves as a costly yet crucial "introductory lesson in compliance." It clearly reveals a reality: under the current global regulatory environment, compliance capability is no longer merely a cost center, but rather the core competitive barrier and foundation for survival for prediction market platforms.

Sustainable innovation is no longer about seeking loopholes in rules, but rather about actively exploring how to leverage blockchain technology to enhance efficiency, transparency, and inclusivity while adhering to the core principles of existing legal frameworks, thereby making genuine contributions to society. For entrepreneurial teams with profound technical expertise and a global perspective, the following three compliance pathways can provide practical assistance in bridging innovation and regulation.

I. Compliance by Design: Embedding Compliance DNA into Product Design and Business Narrative

The agile development model of "develop first, comply later" carries significant risks in this sector. Once regulators intervene, the costs associated with disruptive business adjustments (such as mandatory delisting of core markets or restructuring KYC systems) will far exceed the preventive compliance costs incurred at an early stage.

  • Legal Characterization of Token Economics Models:Are platform tokens functional utilities or securities? This is the primary question. At the whitepaper stage, projects should carefully design token functionality to avoid meeting the criteria for classification as securities to the greatest extent possible, and prepare robust legal arguments to address potential regulatory inquiries.
  • User and Data Flow Planning:Compliance requirements must be planned in advance within the technical architecture. For instance, how will users from different jurisdictions be identified, restricted, and guided? How will user data storage, processing, and protection schemes comply with the laws and regulations of the place of registration and relevant operating regions? These issues must be clarified during the architecture design phase to avoid subsequent "patchwork" modifications.
  • Value Restatement:Constructing a proactive and responsible compliance narrative: When communicating with regulators, prediction market platforms should not merely offer passive defenses but should actively shape their narrative, positioning themselves as innovative tools with social value. Emphasize the positive impact of "information discovery" functions on the overall economy, and explore the potential for "risk hedging" by designing and arguing from a risk management perspective. This helps integrate the platform into the broader narrative of financial infrastructure, enhancing its seriousness and legitimacy.

II. Deeply Understanding Regulatory Logic and Proactively Communicating: Bridging the Narrative Gap

There is a natural gap between the terminology system of Web3 and the concerns of regulatory authorities. Entrepreneurial teams need to learn to use the language of legal compliance understandable to regulators to proactively and positively articulate their business operations.

  • Translating the Business Model to Address Regulatory Concerns:The core concerns of regulatory authorities are investor protection, market integrity, anti-money laundering, and financial stability. Therefore, when introducing the business, one should not merely state, “We are a decentralized prediction market,” but rather articulate it as: “We are an information platform that leverages blockchain technology and economic incentives to aggregate collective wisdom, with multiple built-in mechanisms (such as KYC, transaction monitoring, and market review) to ensure the fairness and compliance of the platform.” This approach directly aligns innovation with regulatory concerns.
  • Proactively Seeking Regulatory Clarity Through Strategic Disclosure and Communication:Seeking professional legal advice is crucial. A legal opinion issued by a professional law firm, which provides an in-depth analysis of the legal characterization of the platform’s business model, serves not only as the cornerstone of internal risk control but also demonstrates to partners and even regulatory authorities the good-faith efforts and serious commitment to compliance. Under the guidance of professional lawyers, consider proactively and strategically submitting explanatory documents to relevant regulatory authorities. These documents should clearly and candidly introduce the business model, the risk management measures already implemented, and the positive social value generated, with the aim of building trust and avoiding sudden enforcement actions triggered by information asymmetry.
  • Exploring “Regulatory Sandboxes”:Actively monitor and apply for entry into fintech “regulatory sandboxes” established in jurisdictions such as Singapore, the United Arab Emirates, and the United Kingdom. This provides a valuable opportunity to test products in a controlled environment while establishing direct channels of communication with regulatory authorities. Such proactive communication and experience also facilitate effective engagement with other regulatory bodies in the future.

III. Supporting Your Success: Your Global Compliance Strategic Partner

Mankun Law Firm specializes in providing cutting-edge, practical compliance solutions for Web3 innovation projects. We deeply understand the unique challenges faced by Chinese technology teams in expanding into global markets and offer the following tailored services:

  • Global Regulatory Mapping and Structural Design:We provide analysis of the regulatory stance on prediction market businesses in major jurisdictions worldwide (including the United States, Singapore, Hong Kong, the European Union, and the British Virgin Islands). We assist you in designing optimal cross-border legal structures (such as foundations and separation of operating entities) to efficiently meet regulatory requirements in different regions and achieve tax optimization.
  • Establishment and Implementation of Core Compliance Systems:
    (1) Including but not limited to AML/CFT and KYC solutions: We help you select and integrate KYC service providers that meet international standards, tailor anti-money laundering and counter-terrorist financing policies, and ensure adherence to the baseline requirements of global regulations.
    (2) Market Review and Launch Compliance Process: We assist you in establishing rigorous legal standards for market content review to ensure that compliance screening is completed prior to the launch of new markets, proactively avoiding sensitive topics such as politics and violence, thereby safeguarding the operational lifeline.
  • Regulatory Communication and Representation:Leveraging our profound understanding of regulatory frameworks in China, the United States, and Europe, along with extensive practical experience, we can represent you in professional and effective communications with global regulatory authorities. From preparing communication materials and conducting mock Q&A sessions to accompanying you at meetings, we ensure that your innovative value is accurately understood and your commitment to compliance is fully recognized.