Author: Chloe, ChainCatcher

On March 23, Polymarket officially announced its updated Market Integrity Rules, which apply simultaneously to its DeFi platform and US exchanges regulated by the CFTC. The new rules explicitly prohibit three types of insider trading and strengthen the framework for combating market manipulation. This policy adjustment did not come out of thin air, but is the product of a series of controversies and public pressure, and also a compliance self-rescue move by Polymarket in the face of impact from mainstream US financial regulation.

However, the new regulations don't just affect genuine insider players. Does it also directly threaten the interests of the vast number of users who exploit arbitrage opportunities? Or perhaps the professional arbitrageurs who actually provide liquidity?

The history of pressure behind rule upgrades: from the Venezuelan coup to the Iran war

Looking back at the public and regulatory pressure Polymarket has faced in recent months, in early January 2026, an anonymous user placed a $32,537 bet on Polymarket that "Maduro will step down before January 31st." With Trump announcing Maduro's arrest on Truth Social at 4:21 AM, the user immediately received a return of $436,000, a return on investment of over 13 times.

The investigation revealed that the account was only created in December 2025, and all bets were precisely placed on the Venezuelan political situation, with the bets placed just hours before the events erupted. Dennis Kelleher, co-founder of Better Markets, pointed out that this transaction exhibited all the characteristics of insider trading: a newly created account, large sums of money, precise timing, and all occurring in an unregulated market lacking transparency.

Coincidentally, around the same time, suspicious transactions targeting the "timing of US military action against Iran" appeared on Polymarket. Some accounts accurately opened positions on the eve of the US military strike and made hundreds of thousands of dollars in profit.

It's worth noting that Polymarket CEO Shayne Coplan once made a thought-provoking statement in an interview with CBS News: "It's a good thing that insiders have an advantage in the market."

However, in reality, in March 2026, Senators Adam Schiff and John Curtis jointly introduced bipartisan legislation to ban trading contracts in the prediction market that resemble "sports or casino games." That same month, the Commodity Futures Trading Commission (CFTC) issued guidelines requiring prediction market platforms to take specific measures to prevent insider trading and encouraging exchanges to proactively consult with regulators to identify "manipulation or price distortion risks" when designing event contracts.

The regulatory crackdown has already taken shape, and Polymarket's policy upgrade is a proactive response to this crackdown.

New Regulations Analysis: Three Types of Prohibitions and a Multi-Layer Monitoring Framework

On March 23, 2026, Polymarket officially released updated market integrity rules, clearly defining three red lines: first, transactions based on the theft of confidential information; second, transactions based on illegal sources of information; and third, transactions by those who have influence over the outcome.

Regarding market manipulation, the rules further explicitly prohibit spoofing, wash trading, and fictitious transactions. In an interview with ChainCatcher, ChainX Education stated that the boundary between "wash trading" and normal trading lies in whether it generates real value and whether transaction costs are incurred. Wash trading involves the same group of people moving funds between different accounts, purely for data manipulation; while normal arbitrage or market making involves placing limit orders at different price levels and bearing the risk of holding positions. Each transaction is executed with real market users and can withstand scrutiny.

In terms of execution architecture, Polymarket adopts a "multi-layered monitoring" design. On the DeFi platform side, all transactions are recorded on the Polygon chain, which can be publicly viewed by anyone. The platform collaborates with world-class monitoring technology professional institutions to detect on-chain anomalies; once suspicious behavior is detected, sanctions that can be taken include blocking wallet addresses and referring users to law enforcement agencies.

On the Polymarket US (CFTC-regulated exchange) side, monitoring is divided into three layers: external monitoring technology partners, real-time monitoring desks, and a regulatory service agreement with the National Futures Association (NFA), which can directly investigate and sanction violators. Sanctions include suspension of qualifications, termination of accounts, monetary fines, or referral to regulatory authorities.

What are the interests of users who exploit promotional offers and the predicaments of related studios?

Polymarket's move is a heavy blow to insider traders, but it may have a different impact on users who exploit loopholes and related studios. The reactions of major market players to the new regulations are intriguing. ChainCatcher, a platform with a historical trading volume exceeding $200 million on Polymarket, stated that the new regulations were expected, even long anticipated. They believe it's not a blow, but rather a sign of market maturity. Even when the platform started charging fees, their professional team had already predicted that fees would eventually be levied on the entire market and that regulation would be strengthened.

For ordinary airdrop users, the "wash trading" behavior that relied on creating massive on-chain records and engaging in two-account wash trading in a single market is now directly under the scrutiny of the new regulations. Some players have even evolved to control a matrix of 100 wallets or hedge between Polymarket and Kalshi, but the upgraded monitoring system has greatly increased the risks of such behavior.

ChainLearning believes that truly high-quality strategies should not be about "profiteering," but rather about genuine arbitrage. Arbitrage itself is a process of identifying price discrepancies and correcting market inefficiencies, which is a healthy behavior needed for market prediction. As gray-area operations are squeezed out, the market will become cleaner, and professional arbitrageurs may actually reap higher profits.

The Liquidity Paradox: Are users who inflate traffic parasites or part of the infrastructure?

Furthermore, behind this wave of regulations lies an unavoidable contradiction for Polymarket: its liquidity is not naturally formed. On-chain data shows that 80% of users on the platform wager less than $500 per bet, and the average wager over the past month was only around $100. Therefore, the market depth is truly supported by a very small number of large traders and liquidity providers.

It is worth exploring whether the group of farmers who adopt "legitimate strategies" (such as providing two-way liquidity and cross-platform arbitrage) among the airdropped farmers have objectively played the role of informal market makers.

They narrowed the bid-ask spread and enhanced market capacity, allowing ordinary users to establish positions at more reasonable prices. On the other hand, from a business perspective, after Polymarket's return to the US market, it urgently needs massive amounts of real trading and depth data to prove the effectiveness of its market to the CFTC (Commodity Futures Trading Commission), which is crucial for obtaining further regulatory approval.

If the new regulations are too aggressive and scare away these users who exploit loopholes, a liquidity crunch in the short term is almost inevitable, especially in niche markets where these farmers are often the only source of counterparties.

In response, ChainNews stated that platforms should acknowledge the contributions of users who provide genuine liquidity. Taking a multi-account system as an example, if a user contributes millions of dollars in trading volume daily, all of which are maker limit orders, this is precisely what the platform's mechanism encourages. Especially in events with low volatility and poor liquidity, these orders add depth to the order book, allowing ordinary users to execute trades. This behavior essentially involves exchanging capital and time for rebates, while simultaneously serving the market.

With regulatory compliance becoming more stringent, do these studios also need to undergo strategic transformation?

It can be said that Polymarket's compliance process is not a temporary market fluctuation, but a signal of a strategic shift in the platform.

From acquiring the licensed exchange QCX to signing an agreement with the NFA, all of this indicates that prediction markets are moving closer to traditional financial regulation. On this highly transparent and regulated path, the space for traditional "low-quality volume manipulation" will only become increasingly narrow. ChainLearning believes that the new regulations are actually beneficial to professional teams, and they will take three countermeasures in the future: First, increase liquidity provision to secure more maker rebates; second, actively discuss deeper market-making solutions with platforms; and third, continuously optimize strategies to increase returns while remaining compliant.

Overall, for studios that rely on Polymarket as their core profit source, now is a crucial juncture to shift their strategic focus from "quantity" to "quality." Instead of manipulating 100 wallets for low-quality wash trading and risking precise detection and mass bans by monitoring systems, it's better to abandon the multi-wallet matrix and instead manage a few high-quality accounts. Conducting in-depth trading through genuine market research, or focusing on providing liquidity within the platform's guidelines, not only effectively avoids the risk of bans but also potentially leads to a more favorable token airdrop allocation in the final weighted airdrop calculation due to contributing real value.