The cryptocurrency market’s maturation has come at the cost of its recognition and increased oversight by regulators, and their radar is now targeting the expanding DeFi sector. From U.S Senator Elizabeth Warren calling it “the most dangerous part of the crypto world,” to the Securities and Exchange Commission (SEC) regularly highlighting the risks associated with the market – a campaign to bring DeFi into the helm of existing financial regulations is intensifying.
In line with the same, the Commodity Futures Trading Commission (CFTC) on Monday made the year’s first move. It was ordering crypto predictions betting platform Polymarket, to shut down its various markets while also imposing a $1.4 million fine. The reason for the same has been cited as the company’s failure to register with the regulator.
Hence, the New York-based company has been ordered to wind down “all markets displayed on Polymarket.com that do not comply with the Commodity Exchange Act (CEA),” the CFTC noted in a statement. Polymarket had first come under the CFTC’s radar in October last year, according to Bloomberg.
Polymarket is a crypto betting platform that allows users to make predictions on real-life events and bet on one out of at least two options using cryptocurrencies. These include results of the U.S Presidential elections and the country’s expected Coronavirus case count, among other events.
These markets are considered to be swaps under federal laws and the CFTC revealed that Polymarket had offered at least 900 such markets over the last 18 months. The company was therefore required to obtain a Designated Contract Market (DCM) and Swap Execution Facility (SEF) registration under the CEA, which CFTC noted that it failed to do.
CFTC’s acting director of enforcement, Vincent McGonagle, said in a statement,
“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.”
However, the agency also noted in its statement that since Polymarket complied with the investigation, its fine has been reduced. Regardless, the company has been ordered to stop offering markets by January 14 and to return the users’ funds by 24 January.
Moreover, Polymarket will be required to cease and desist from any further violations of the CEA. Although, Polymarket’s tweet in response to the order suggests that the company itself will continue to run operations.
We’re pleased to confirm that we've successfully agreed to a settlement with the CFTC, & are excited to move forward & focus on the future of Polymarket.
As per the order, the 3 markets lasting past 1/14 that don't comply with the Act will be prematurely resolved. More soon
— Polymarket (@PolymarketHQ) January 3, 2022
Like other regulatory bodies, the CFTC’s stance on the DeFi market has also been skeptical. In June 2021, the agency’s former Commissioner Dan Berkowitz had noted that unlicensed decentralized finance (DeFi) markets may be illegal in the U.S. He also mentioned, “the CEA does not contain any exception from registration for digital currencies, blockchains, or smart contracts.”