The European Securities and Markets Authority (ESMA) has placed crypto prediction markets on its primary monitoring radar in its latest risk monitoring report. The European regulator stated that platforms like Polymarket and Kalshi are rife with insider trading. ESMA noted that platform operators remain slow to respond, acting reactively only after perpetrators have already secured their profits.
On-the-ground data reinforces the regulator’s warnings. Wall Street Journal data revealed that 67% of profits on Polymarket flow to just 0.1% of accounts. Bloomberg’s analysis similarly showed that the majority of regular users on Polymarket end up with net losses.
Why Are User Bans Uneven?
Polymarket and Kalshi block users from certain European Union countries. This decision has raised questions from ESMA because geoblocking is not uniformly enforced across all member states. While both platforms implement bans on VPN usage to prevent unauthorized access, ESMA doubts the practical effectiveness of these bans in the field.
Diverging legal statuses for event contracts also fuel regulatory confusion across member states. These wagering instruments could potentially fall under MiFID II, MiCA, or simply be classified as traditional gambling. If deemed financial instruments, the contracts would immediately be classified as derivatives - an asset class prohibited from being offered to retail investors under national rules in many EU countries. Currently, Malta is the only member state preparing a dedicated regulatory framework for prediction markets.
A Divergent Path in the United States
U.S. authorities have taken a different regulatory route from Europe. The Commodity Futures Trading Commission (CFTC) decided to maintain its jurisdiction over prediction markets with one strict boundary: banning contracts involving war or assassination. This rule sparked debate between traditional futures exchange CME and Kalshi during a CFTC roundtable last August.
Platform representatives continue to reject claims that their systems facilitate untraceable activity. Polymarket Chief Legal Officer Neal Kumar argued that political betting cases involving Venezuelan President Nicolás Maduro proved the platform is not fully anonymous. However, this legal defense faces the reality of highly skewed profit distribution: as long as the lion’s share of profits continues to flow to a handful of wallets, crypto prediction markets will remain under heavy scrutiny. Via Decrypt.
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
