Original authors: Deng Xiaoyu, Li Haojun

Recently, Polymarket, a global decentralized prediction market platform, launched a simplified Chinese interface , attracting significant attention in the domestic market.

Does the fact that overseas financial platforms have adopted a Chinese interface mean they have opened their doors to the Chinese market? The answer is likely yes.

In the eyes of Chinese regulators, this behavior sends a clear signal – the platform intends to target residents in China for business, and therefore will be subject to the jurisdiction and scrutiny of Chinese law.

Polymarket, an overseas prediction platform that recently garnered attention for launching a simplified Chinese version, allows users to place bets using cryptocurrencies on the outcomes of various events. Is this type of betting-like business a form of financial innovation, or does it operate in a legal gray area?

This article will delve into its business model and, based on current domestic regulations, clarify the true nature of Polymarket under Chinese law, and clearly reveal the legal red lines and specific risks that both ordinary users and promoters may face when participating in it.

Pattern Analysis: Named "Prediction," but actually a "Betting Game"?

On the Polymarket platform, users can place bets on the outcomes of various events using stablecoins such as USDC. However, from a Chinese legal perspective, its business structure exhibits the following three key characteristics:

1. An "either/or" betting structure

The Polymarket platform simply designs event outcomes as opposing "yes or no" options . Users buy and sell these options, and price fluctuations reflect market expectations of the probability of the event occurring. After the event, settlement is made directly in cash based on the outcome, with winners profiting and losers incurring losses.

2. Speculative behavior where the outcome depends entirely on "luck".

The user's earnings depend entirely on uncertain future events (such as election results or the outcome of a competition). The entire process does not create any real value or hedge against risks; it is essentially a probability-based speculative behavior .

3. Entire process settled in cryptocurrency.

All fund flows are completed on the Polygon blockchain through cryptocurrencies such as USDC , completely outside the traditional banking and foreign exchange regulatory system and outside the scope of China's financial surveillance.

Legal characterization: Financial innovation or illegal activity?

While such prediction markets may fall under regulatory purview in some countries like the United States, their legal characterization is drastically different and more stringent under the legal framework of mainland China, due to their lack of licensing requirements and obvious speculative nature.

From the perspective of Chinese legal practice, Polymarket's business model is highly likely to be simultaneously classified as "illegal financial activities" and "online gambling," and it is extremely easy for it to become a money laundering channel.

1. Characterization of Illegal Financial Activities

According to the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation" (Yinfa [2021] No. 237) issued by the People's Bank of China and other ten ministries and commissions in 2021:

"Providing services to residents in my country via the internet through overseas virtual currency exchanges is also considered illegal financial activity. Legal entities, non-legal entities, and individuals who knowingly or should have known that these overseas virtual currency exchanges are engaged in virtual currency-related business and still provide them with marketing, payment settlement, technical support, or other services will be held accountable according to law."

If Polymarket, as an overseas platform, provides cryptocurrency-based derivatives trading to domestic residents through a Chinese interface, it clearly falls under the aforementioned prohibited regulations.

2. Essentially identified as online gambling

The judicial authorities adopted the principle of "substance over form" in their determinations. Although the platform claimed to be a "market prediction platform," it fully met the three elements of gambling:

Invested funds
Dependence on chance results
There are wins and losses of money.

Lacking a financial license and not serving the real economy, its nature is no different from online gambling.

3. Risks associated with new money laundering channels

Due to its anonymity and hedging mechanisms, the platform is easily used for "money laundering": perpetrators can control multiple accounts to place bets on opposing outcomes simultaneously, and after paying a small handling fee, disguise the illegal funds as "betting profits," thereby violating the crime of money laundering under the Criminal Law.

Legal Risk Analysis of Participants in Mainland China

Depending on their level of involvement and role, the legal risks faced by entities in mainland China (including natural persons and institutions) vary significantly.

1. Regular users: Risks associated with individual participation

For domestic individuals who access the platform and conduct personal transactions solely through technical means, the main risks they face are administrative penalties and financial compliance risks.

Administrative liability for violations:

Those who participate in gambling with large sums of money may be subject to administrative penalties, including detention and fines.

Criminal risk:

Because Polymarket uses cryptocurrencies such as USDC for settlement, if users come into contact with funds from telecommunications fraud, gambling, or other crimes during the deposit and withdrawal process (OTC transactions), they may be considered guilty of concealing or disguising the proceeds of crime.

Political and censorship risks:

Making predictions involving political figures or sensitive events may attract the attention and investigation of relevant departments.

2. Promoters and Agents: High-Risk Roles

Domestic entities that promote Polymarket through social media and private communities, post invitation links, provide trading guidance, form trading signal groups, or provide technical access services face extremely high criminal legal risks.

Operating a casino: In judicial practice, developing a downline through invitation links and taking a cut is often considered "acting as an agent for a gambling website." Those with serious offenses may be sentenced to imprisonment for five to ten years.

Aiding and abetting cybercrime: Even if you do not directly profit from it, knowingly providing advertising, promotion, technical support, or other assistance to a platform suspected of committing a crime may constitute this crime and carry a sentence of up to three years in prison.

Regulatory Trends and Compliance Recommendations

Currently, China maintains a strict crackdown on cross-border online gambling and illegal virtual currency transactions. Polymarket's introduction of a simplified Chinese interface makes it even more likely to attract the attention of regulatory agencies. Based on the above risk analysis, Mankiw offers the following advice for different groups:

1. Practitioners and promoters: Upholding the bottom line of the law

Please do not act as an agent, promote, or provide any support for overseas prediction platforms such as Polymarket. If you are a self-media KOL or community operator, it is recommended that you immediately stop related promotions, sever any financial ties with the platform, and avoid crossing the line into the crime of "operating a casino."

2. Regular users: Protect your money.

Individual investors are advised to fully understand the legal nature and financial risks of cross-border online gambling , and avoid having their bank accounts frozen by public security authorities or having administrative violations recorded, which could affect their personal credit and career development.

3. Platforms and related parties: Recognize legal boundaries

By launching a Chinese interface and other initiatives, Polymarket has clearly demonstrated its intention to serve Chinese users, effectively subjecting its operations to Chinese law. Even if the operating entity is located overseas, the platform and related service providers may still face risks such as being blacklisted, having their services blocked, or even incurring criminal liability. It is recommended that relevant parties carefully assess the legal consequences of their business dealings in China.

Conclusion

Financial innovation should be conducted within the framework of laws and regulations. As an emerging economic model, prediction markets currently lack a legal entry path in China. For domestic entities, participating in such activities not only lacks legal protection but also faces severe administrative and even criminal liabilities. It is recommended that all market participants remain rational and strictly adhere to compliance.

Coinbase has hired Opyn to lead the team, but does not cover Opyn’s protocol products

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