Recently, Polymarket, a global decentralized prediction market platform, launched a simplified Chinese interface, attracting significant attention in the domestic market. Does the "appearance" of a Chinese interface on an overseas financial platform equate to opening its doors to the Chinese market? The answer is likely yes. In the eyes of Chinese regulators, this action sends a clear signal—the platform intends to target Chinese residents 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 "bet" on the outcomes of various events using cryptocurrencies. Is this type of business, with its gambling nature, a form of financial innovation, or does it operate in a legal gray area? This article will delve into its business model, clarifying the true nature of Polymarket under Chinese law based on current domestic regulations, and clearly revealing the legal red lines and specific risks that both ordinary users and promoters may face when participating. Model Analysis: "Prediction" in Name, "Gambling" in Reality? On the Polymarket platform, users can "bet" 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. A "Do or No" Gambling Structure The Polymarket platform simply designs event outcomes as "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, cash settlement is made directly based on the outcome; winners profit, and losers lose. 2. Speculative behavior where the outcome depends entirely on "luck" Users' profits depend entirely on uncertain future events (such as election results or the outcome of a sporting event). The entire process does not create actual value or hedge risks; it is essentially a probability-based speculative activity. 3. Entire process settled in cryptocurrency All fund flows are completed on the Polygon blockchain using 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 be subject to regulation in some countries like the United States, under the legal framework of mainland China, due to their lack of licensing and their obvious speculative nature, their legal characterization is drastically different and more severe. From the perspective of Chinese legal practice, Polymarket's business model is highly likely to be simultaneously identified as "illegal financial activity" and "online gambling," and is extremely prone to becoming a money laundering channel: 1. Characterization of Illegal Financial Activity 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 ten other ministries in 2021: "Providing services to residents within my country through the Internet by overseas virtual currency exchanges also constitutes illegal financial activity. For domestic staff of relevant overseas virtual currency exchanges, as well as legal persons, non-legal persons, and natural persons who knowingly or should have known that they are engaged in virtual currency-related business and still provide them with marketing, payment settlement, technical support, and other services, relevant responsibilities shall be pursued according to law." Polymarket As an overseas platform, if it provides virtual currency-based derivatives trading to domestic residents through a Chinese interface, it clearly falls within the scope of the aforementioned prohibitions. 2. Substantively Deemed Online Gambling The judicial authorities adopt the principle of "substance over form" in their determination. Although the platform uses the name "prediction market," it fully meets the three elements of gambling: invested funds, reliance on chance outcomes, and the existence of financial gains and losses. Lacking a financial license and not serving the real economy, its nature is no different from online gambling. 3. Risks of New Money Laundering Channels Due to its anonymity and hedging mechanisms, this platform is easily used for "counter-money laundering": perpetrators can control multiple accounts to simultaneously place bets on opposing outcomes, disguising illegal funds as "betting profits" after paying a small handling fee, thus violating the crime of money laundering under the Criminal Law. Legal Risk Analysis of Participants in Mainland China Depending on the degree of participation and role, the legal risks faced by entities in Mainland China (including natural persons and institutions) vary significantly. 1. Ordinary Users: Risks of Individual Participation For domestic natural persons who only access the platform through technical means and conduct personal transactions, the main risks are administrative penalties and fund compliance risks. Administrative Liability: Users may face administrative penalties, including detention and fines, due to involvement in gambling with substantial sums. Criminal Risk: Since Polymarket uses cryptocurrencies such as USDC for settlement, users who come into contact with funds from telecommunications fraud, gambling, or other crimes during OTC transactions may be charged with concealing or disguising the proceeds of crime. Political and Censorship Risk: Participation in predictions involving political figures or sensitive events may attract the attention and investigation of relevant authorities. 2. Promoters and Agents: High-Risk Roles Domestic entities that promote Polymarket through social media and private communities, issuing invitation links, providing trading guidance, forming trading groups, or providing technical access services face extremely high criminal legal risks. Operating a Casino: In judicial practice, developing downlines through invitation links and taking a cut is often considered "acting as an agent for a gambling website." Serious offenses can result in imprisonment for five to ten years. Aiding and Abetting Cybercrime: Even without direct profit, knowingly providing advertising, promotion, or technical support to a platform suspected of criminal activity may constitute this crime, punishable by up to three years imprisonment. 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, Attorney Mankiw offers the following advice to different groups: 1. Practitioners and promoters: Uphold the legal bottom line. Do not act as an agent, promote, or provide any support for overseas prediction platforms like Polymarket. If you are a self-media KOL or community operator, it is recommended to immediately stop related promotions, sever any financial ties with the platform, and avoid crossing the red line of "operating a casino." 2. Ordinary users: Protect your money. Individual investors are advised to fully understand the legal attributes and financial risks of cross-border online gambling to avoid having their bank accounts frozen by public security organs or incurring administrative violations that affect their personal credit and career development. 3. Platform and Related Parties: Recognizing Legal Boundaries By launching a Chinese interface and other measures, Polymarket has demonstrated a clear intention to serve Chinese users, making its business effectively subject to Chinese law. Even if the operating entity is located overseas, the platform and related service providers may still face the risk of being blacklisted, having their services blocked, or even facing criminal liability. It is recommended that relevant parties carefully assess the legal consequences of their business dealings with China.
Catherine
Anais
Kikyo
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