Platform for crypto bets on Trump, sport and other topics faces probe

WASHINGTON • It is the go-to place for making crypto wagers on whether former US president Donald Trump retakes the White House and celebrities Jennifer Lopez and Ben Affleck get engaged. It is also under scrutiny by a top Wall Street regulator.

The company is Polymarket - a New York-based platform that has surged in popularity during the Covid-19 pandemic as a way for bettors to predict the outcomes of real-world events, including elections, ball games and the private lives of celebrities.

The problem? It may be breaking United States financial rules.

The Commodity Futures Trading Commission (CFTC) is investigating if Polymarket is letting customers improperly trade swaps or binary options and if it should be registered with the agency, said people familiar with the matter.

"Polymarket is firmly committed to complying with applicable laws and regulations and to providing information to regulators that will assist them with any inquiry," a spokesman for the company said.

The CFTC declined to comment.

Led by 23-year-old founder Shayne Coplan, Polymarket is hot, facilitating about four billion shares since launching last year.

The company has been in talks with investors on a new round of funding that could value it at almost US$1 billion (S$1.34 billion), according to two sources with knowledge of the matter who asked not to be named because the discussions are private.

While the CFTC is best known for policing banks' derivatives desks and oil traders, it has long been grappling with how to regulate event contracts like those offered by Polymarket.

Amid tough questions from the CFTC, cryptocurrency exchange ErisX withdrew a proposal in March to offer futures contracts based on National Football League games, products that casinos could have used to hedge their sportsbooks.

Crucial to Polymarket is another asset class of the moment: crypto. Instead of US dollars, customers who want to make trades have to use USD Coin, a so-called stablecoin backed by Coinbase Global.

Amount Polymarket could be valued at if a new round of funding - now in private discussion - comes through.

Stablecoins, whose values are pegged to fiat currencies, have received a lot of attention themselves from Washington in recent months.

Government agencies, including the CFTC, are concerned that the largely unregulated tokens have grown so big that they could put consumers at risk or threaten financial stability if Bitcoin and other cryptocurrencies crashed.

The market value of USD Coin is now US$32.4 billion, up from US$3.9 billion at the end of last year, according to CoinMarketCap.com.

CFTC investigations do not always lead to enforcement cases, and Polymarket has not been accused of wrongdoing. If companies are sanctioned by the regulator, they can face fines and restrictions on offering products.

To handle the probe, Polymarket has retained law firm Sullivan & Cromwell partner James McDonald, who was head of the CFTC's enforcement division until last year, said a source with knowledge of the hiring.

Polymarket has said it is not only offering bettors a destination to make money or lose their shirts. In an age of disinformation and fake news, it argues that it is providing useful data on what is likely to happen in the not-so-distant future on geopolitics and other important topics.

"Via price discovery, you get this perpetually accurate forecast about the future of a given event," Mr Coplan said last year on the Star Spangled Gamblers podcast. "This is something that could have tremendous social value."

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