Polymarket Seeks Fresh Funding Amid CFTC Scrutiny and Increased Competition

Key Takeaways

• Polymarket is reportedly seeking an additional $50 million in funding.
• Activity on the decentralized prediction market has surged in the run-up to November’s elections.
• However, the platform faces several challenges.

With platform activity surging in the runup to November’s U.S. elections, Polymarket may be looking to raise additional funding to capitalize on the moment.

However, an impending post-election cool-off threatens Polymarket’s business, along with growing competition from other prediction markets and a potential CFTC investigation.

Polymarket Seeks $50 Million in Fresh Funding

According to The Information , Polymarket is looking to raise an additional $50 million, either through a traditional equity-based funding round or via a new token.

To date, the company has raised $74 million. Its most recent funding round was a $45 million Series B led by Peter Thiel’s Founders Fund with the participation of Ethereum founder Vitalik Buterin.

Riding High on Election Mania

Since Polymarket’s Series B, the decentralized prediction market has exploded into the mainstream consciousness thanks to a wave of election betting.

According to data from Dune, monthly transaction volumes on the platform more than tripled from $112.5 million in June to $387 in July. Activity jumped again in August, recording a new all-time high of $472.9 million, and is currently on track to beat that record in September.

With more than 995 million dollars bet so far, the market for the 2024 U.S. election winner is by far the most popular on the platform. Of the 20 markets with the most money staked, 14 relate to November’s election.  

Assuming interest in other predictions doesn’t explode, it is safe to assume that activity will return to earlier levels after the election.

However, a fresh injection of capital could help the platform bolster its liquidity and attract a broader array of users, for example, by expanding its presence in the lucrative sports betting sector. If such growth fails to materialize, the additional funding may even be enough to keep the company going until the next election cycle.

CFTC Scrutiny

While U.S. elections drive the vast majority of activity on Polymarket, the platform does not have regulatory approval to provide services to American users.

In 2022, the Commodity Futures Trading Commission (CFTC) fined the company $1.4 million for failing to comply with regulations surrounding offering event-based binary options. According to the CFTC, Polymarket contracts constitute regulated swaps and can, therefore, only be offered to U.S. investors on a registered exchange.

After the CFTC’s action, Polymarket agreed to prohibit users based in the U.S., at least in theory. 

However, recent comments from CFTC Chair Rostin Behnam indicate that the regulator  keeps a close eye on the platform.

“If anyone, Polymarket or otherwise, conducts themselves in a way that breaks the law we will use our civil enforcement authority to make sure that conduct stops,” he told an audience at the Georgetown Psaros Center for Financial Markets and Policy on Sept. 17.

Behnam’s comments reflect a broader crackdown on decentralized platforms, which the CFTC argues have often skirted the regulatory oversight their centralized peers are subject to.

Decentralized entities and platforms that have been targeted by the Commission’s crackdown include OokiDAO, Uniswap and 0x.

In the latest instance, Mango Markets is considering a settlement that could incur a $500,000 fine for alleged violations of commodities regulations.

Increased Competition in the Prediction Market Space

As Polymarket seeks to secure fresh funding amid the looming threat of further CFTC action, it also faces mounting competition from both established and emerging players in the prediction market space. 

On Sept. 17, the digital asset trading firm Wintermute announced that it is developing “a permissionless smart contract for a new U.S. presidential election prediction market.”

The move signals Wintermute’s intention to compete with platforms like Polymarket, offering users a similar experience across multiple blockchains.

Meanwhile, Kaishi has sought to depict its platform as “the only legal prediction market in the U.S.,”  positioning itself as a more compliant alternative to Polymarket and being more established in the U.S.

In a major win for the company, earlier this month, Judge Jia Cobb ruled against the CFTC that Kaishi could grant U.S. users access to election-based prediction markets .

Hailing the decision as a watershed moment, Co-Founder and CEO Tarek Mansour celebrated that “election markets are now legal in the United States for the first time in 100 years.”