Lawyer Asserts Decentralized Prediction Markets Are Not Gambling

Regulators in several jurisdictions have banned the Web3 prediction market platform Polymarket, classifying it as a gambling venue. However, attorney Aaron Brogan finds the authorities’ arguments unconvincing, reports CoinDesk.

The decision to ban the platform was made by Singapore, Thailand, and Taiwan. Polymarket has also faced scrutiny from regulatory and law enforcement bodies in France and the United States.

According to Brogan, authorities unjustifiably equate decentralized prediction markets with traditional bookmakers. The latter essentially bet against their clients by setting specific payout odds. The income for gambling establishments depends on these odds and the event’s outcome.

Platforms like Polymarket and Kalshi act as neutral intermediaries, matching users’ bets. These platforms do not take sides and earn revenue from transaction fees.

“Prediction markets are not gambling because they are not structured as such. They are tools for understanding, hedging, and creating public goods. That’s what fundamentally sets them apart,” the lawyer emphasized.

In the United States, such activities are regulated by the Commodity Exchange Act at the federal level, and participants must register with the CFTC as Designated Contract Markets (DCM). This status precludes state-level gambling organization claims.

Kalshi has actively pursued a DCM license and recently launched a betting market on the Super Bowl. Polymarket is not registered in the United States, which may be linked to its legal issues, the expert suggested. Local authorities might have brought charges.

Crypto.com has submitted an application to the CFTC for self-certification as a DCM for its Sports platform. This move implies that if the regulator does not respond within 24 hours, the applicant may consider it an approval of their activities. Experts are already questioning how the entry of decentralized platforms into the industry threatens traditional betting firms.

“If they continue to proliferate and the CFTC does not take action (which it has yet to do), they will eventually eat these bookmakers’ lunch. It’s a $21 billion industry, and the new products will be much better,” Brogan concluded.

As reported, the CFTC requested client data from Coinbase as part of an investigation concerning Polymarket.