Is capital driving compliance? Insights into Polymarket's global regulatory dilemma and strategies for survival.

Here is the English translation: "Polymarket's story reveals a 'capital-driven compliance' path. In the early stages of platform operation, the project first postpones compliance and prioritizes growing and strengthening the project to gain scale effects and first-mover advantages. Subsequently, the project uses the initial accumulated advantages to raise funds and actively pursue compliance transformation through methods like acquisitions, thereby achieving business legalization and further expansion. This is not just a compliance strategy, but a business strategy." Author: Gui Ruofei, Lucius Traditional American polling institutions never imagined that they would be replaced not by advanced artificial intelligence, but by a Web3 prediction platform. In the 2024 election, most polling institutions' survey data showed Harris having a clear advantage over Trump in support rates. However, Polymarket's prediction results were vastly different from polling institutions, with Trump's winning probability consistently far ahead of Harris. Ultimately, as Trump overwhelmingly swept Harris to win the 2024 presidential election, Polymarket became famous and entered the public eye. However, behind Polymarket's rapid development, compliance issues and regulatory pressures have persistently lingered, becoming the biggest obstacle to its further expansion. Facing aggressive regulatory agencies from various countries, Polymarket has carved out its own unique compliance path. This article will provide an in-depth analysis of Polymarket's regulatory status, compliance risks, and compliance path from a professional perspective of the Web3 industry and cross-border compliance, for reference by future Web3 entrepreneurs and project teams. [The rest of the translation follows the same professional and accurate approach]

In addition, the prediction market where Polymarket is located is simultaneously facing a "tug of war" between federal and state regulatory agencies. The CFTC is trying to exercise exclusive jurisdiction over the prediction market through the Commodity Exchange Act, viewing it as an "event contract". However, gambling regulatory agencies in some U.S. states view the prediction market as "illegal gambling" and have filed lawsuits accordingly. For example, on March 27, 2025, the New Jersey Gambling Enforcement Department issued a cease and desist order to Kalshi, Polymarket's direct competitor, prohibiting it from providing sports betting services without authorization.

In this regard, Kalshi has engaged in a prolonged legal battle with gambling regulatory agencies in New Jersey and other places. Although Federal District Court Judge Edward Kiel determined that the sports event contracts provided by Kalshi fall under the exclusive regulatory scope of the CFTC and ruled that the New Jersey regulatory department should stop interfering with Kalshi's normal operations, the dispute remains unresolved. This jurisdictional dispute between federal and state levels will further increase the uncertainty of the regulatory environment for prediction markets in the United States.

Therefore, for platforms like Polymarket, even with federal-level permits, they may still face legal challenges and litigation risks from state-level authorities. This situation of coexisting "dual regulation" and "regulatory vacuum" not only increases the compliance costs for platforms but also hinders their comprehensive expansion in the U.S. market.

[The translation continues in the same manner for the rest of the text, maintaining the specified translations for specific terms and preserving the structure of the original text.]

As a key provision of the settlement agreement, Polymarket committed to stopping platform services for US users since 2022 and implementing geographical blocking for US IP addresses. Subsequently, Polymarket transferred its core prediction business offshore to circumvent domestic regulatory restrictions and compliance risks in the United States. Notably, despite Polymarket's claims of geographical restrictions for US users, reports suggest that some users continue to trade on the platform by circumventing restrictions through technologies like VPN. This phenomenon reflects both the limitations of IP-based geographical blocking and the solid user base of prediction markets.

To better adapt to the US regulatory environment and prepare for a return to the US market, Polymarket appointed former CFTC Commissioner J. Christopher Giancarlo as the chair of its advisory committee in May 2022. Related reports indicate that this move aims to leverage Giancarlo's deep understanding of CFTC's operational mode and regulatory logic to help Polymarket better plan its compliance path and establish effective communication channels with regulators. This approach of "hiring former regulatory personnel for compliance consulting" is quite common among enterprises in the US pharmaceutical and financial sectors.

However, in November 2024, Polymarket's compliance issues resurfaced. The FBI conducted a raid on Polymarket CEO Shayne Coplan's residence in New York, seizing his phone and other electronic devices, but did not arrest him. The FBI's primary purpose was to investigate whether Polymarket violated its previous settlement agreement with the CFTC, as the platform was suspected of failing to prevent US users from trading through methods like VPN.

Recently, with the Trump administration's rise and crypto-friendly policy regulations, Polymarket's compliance prospects in the US underwent a significant turning point. On July 15, 2025, official reports confirmed that the US Department of Justice (DOJ) and CFTC had officially concluded their investigation into Polymarket without presenting any new charges. This development marks the basic resolution of judicial accusations and regulatory uncertainties faced by Polymarket since the CFTC's penalty in 2022 and the FBI's enforcement action against Shayne Coplan in 2024.

Subsequently, on July 21, 2025, Polymarket officially announced the acquisition of QCEX for $112 million, a derivatives exchange and clearing house licensed by the CFTC. Polymarket's founder and CEO Shayne Coplan hailed this strategic acquisition as a "bringing Polymarket home" move, aimed at providing a "fully regulated and compliant framework" for its US market operations. Coincidentally, QCEX obtained the CFTC's Designated Contract Market (DCM) license on July 9, 2025, and Polymarket completed the acquisition 12 days later. With QCEX's ready-made DCM license, Polymarket can finally legally reopen to US users and temporarily eliminate compliance risk concerns.

On the surface, Polymarket resolved compliance issues and returned to the US market simply by acquiring QCEX with a DCM license. However, the changes and compromises made by Polymarket for compliance go far beyond this. Among these, Polymarket's attitude shift towards KYC/AML is key to its compliance transformation. Polymarket's early characteristics were "anonymity" without KYC and "decentralization" of transactions. Through these features, Polymarket quickly established and expanded its presence in the competitive prediction market. However, this operational strategy brought risks of "regulatory uncertainty" and "market manipulation". With Polymarket's return to the US through QCEX acquisition, it will likely adopt the strict KYC/AML policies required for CFTC-licensed entities.

Specifically, entities regulated by the CFTC must conduct Customer Identification Procedures (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD), along with continuous transaction monitoring and suspicious activity reporting. This also signifies that Polymarket must continuously balance decentralization and regulatory compliance. Polymarket's transformation is not just about meeting regulatory requirements, but is also the inevitable result of transitioning from Web3's "wild growth" model to a regulated financial service institution.

▍3.2 Other Countries and Regions: Conservative Strategy + Active Withdrawal

Compared to the US, Polymarket's compliance strategies in other countries and regions have been relatively conservative. Facing the "gambling" classification of prediction markets in Europe and Singapore, and prohibitive requirements, Polymarket did not object but agreed to geographically block and exit markets in countries like France and Singapore.

04 What Important Insights for Web3 Entrepreneurs?

After a detailed analysis of Polymarket's challenging compliance path, the author believes that other Web3 entrepreneurs should learn at least the following points:

1. The Web3 industry has gradually moved beyond the "wild growth" stage, with more and more projects entering public view and mainstream markets. For Web3 projects to truly grow and become mainstream, compliant operations are an inevitable trend.

2. Whether a Web3 project can truly achieve compliance depends not only on the company's compliance strategy but is also closely related to national policy orientation and regulatory intensity. Polymarket's ultimate achievement of compliant operations owes much to the Trump administration's rise and policy shifts.

3. Polymarket's story reveals a compliance path of "capital-driven compliance". In the early stage of platform operation, project parties first postpone compliance and prioritize growth to achieve scale effects and first-mover advantages. They then use the initially accumulated advantages to raise funds and actively pursue compliance transformation through methods like acquisitions using capital leverage, thereby legalizing and expanding their business. This is not just a compliance strategy but a business strategy.

4. The global regulatory arbitrage window for the Web3 industry is rapidly narrowing, and compliance costs for the entire industry are continuously rising. As the crypto market matures, global regulators are strengthening cooperation and closing regulatory loopholes, making strategies of "regulatory arbitrage" or "offshore operations" increasingly ineffective. Polymarket's "grow first, then comply" approach may no longer be suitable for the new regulatory environment. Web3 project parties and entrepreneurs need a deeper understanding of compliance importance. Future Web3 industry competition will not just be about technology and products but also about compliance capabilities and capital strength.

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