The Regulatory Status of Decentralized Prediction Markets

Decentralized Prediction Markets (DPMs) like **Polymarket** and **Augur** face a hostile regulatory environment, primarily driven by the **US Commodity Futures Trading Commission (CFTC)**. Unlike traditional sports betting, DPMs are classified as trading **unregistered event contracts** (swaps/derivatives) under the Commodity Exchange Act. **Key Developments:** * **Polymarket Settlement (2022):** The CFTC fined Polymarket $1.4M for operating an unregistered Swap Execution Facility. This forced the platform to geoblock US users, establishing that interface operators are liable even if settlement is on-chain. * **Ooki DAO Precedent:** Established that DAO token holders can be personally liable for illegal protocol activities, undermining the "decentralized defense." * **Current Status:** DPMs now operate in a "grey" zone by restricting front-end access in strict jurisdictions (US/China) while the underlying smart contracts remain globally accessible. This contrasts with fully regulated US competitors like **Kalshi**.