The Ontario Securities Commission is cracking down on Polymarket, a crypto-based betting platform that gained prominence during the 2024 U.S. presidential election for letting users wager on real-world events. 

Polymarket explained: Founded by Shayne Coplan, a computer-science dropout from New York City who was 26 when he launched the platform in 2020, Polymarket lets people bet on the outcome of events, like who the next Canadian prime minister will be, or whether the Miami Heat will win the NBA Finals. Other sites offer a similar service, but Polymarket is fully powered by crypto. That means the platform executes trades and pays out winnings automatically, with users betting directly against each other rather than “the house.” Election watchers started tracking Polymarket as an alternative to traditional polling during the 2024 presidential election, which saw users place more than US$3 billion in bets on the outcome.

The OSC’s case: Ontario’s securities regulator argued in a filing this week that Polymarket’s wagers are binary options—contracts where investors bet on the performance of an underlying asset within a period of time, often involving users betting on a “yes” or “no” or multiple choice question. Canada’s securities regulators banned binary options in 2017. Canada’s ombudsman for banking services and investments calls them a high-risk investment strategy “at best” and says they carry a high risk of fraud “at worst.” 

Polymarket was available to Ontario investors between June 2020 and May 2023 and nearly all—99 per cent of 6,044 event-based contracts offered on Polymarket during that time—constituted binary options, the OSC alleges. After May 2023, when the OSC contacted the companies behind the platform, Polymarket restricted Ontario residents from placing bets, but continued to let them close their positions, the regulator alleges. The OSC and two companies behind Polymarket—Blockratize and Adventure One—have reached a settlement, with a hearing to determine whether the agreement they reached is in the public interest scheduled for April 14. Polymarket did not immediately respond to a request for comment. OSC spokesperson Andy McNair-West said the regulator was unable to comment in advance of the hearing.

The enforcement action adds to Polymarket’s legal woes. The U.S. FBI raided Coplan’s home in November as part of an investigation into whether Polymarket continued to accept trades from U.S. users in violation of a 2022 agreement with the Commodity Futures Trading Commission. The CFTC also alleged Polymarket was illegally offering binary options, which are only legal in the U.S. if offered by a registered platform.

Decentralization likely not a defence: Legal experts say the companies behind Polymarket might try to argue they didn’t offer binary options because the platform is powered by crypto and functions automatically, with users betting directly against each other. That argument probably won’t hold up, they say. The use of crypto technology doesn’t “insulate the project from the application of securities laws,” said Matthew Burgoyne, chair of the digital assets and blockchain group at Osler, Hoskin & Harcourt in Calgary. Blockchain lawyer Jonathan Ip noted someone had to build the website the platform operates on and decide which wagers to post on it. “You still are the one that’s ultimately operating this platform,” he said.