David Canellis

They say crypto traders are mentally unstable degenerate gamblers. Nihilists profiteering from others’ misfortune in a sadistic zero-sum game, providing no value to society.



So, when you hear that Polymarket, the blockchain prediction market (read: Web3 bookie), facilitated bets on whether the lost Titanic-hunting sub would be found before its oxygen runs out — it sounds about right.



Decentralized prediction markets (DPMs) like Polychain were some of the earliest smart contract use cases. Augur was the first on Ethereum, having crowdfunded about one year after the blockchain launched in 2014.



These platforms are a little bit like bitcoin ATMs when it comes to capturing mainstream attention. Physical cash machines are a widely understood concept, and so is betting on world events like the SuperBowl or US presidential races.



The idea of a seedy crypto gambling den easily translates. DPMs are pretty much that, except the den is the Ethereum blockchain and nobody runs that, so the cops can’t shut it down (or the morality police).



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">had a quick chat with <a href="https://twitter.com/Polymarket?ref_src=twsrc%5Etfw">@Polymarket</a> <a href="https://t.co/5cFcy6PQyE">pic.twitter.com/5cFcy6PQyE</a>&mdash; Michæl Becker (@michae1becker) <a href="https://twitter.com/michae1becker/status/1671675111181815809?ref_src=twsrc%5Etfw">June 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">When Twitter found out, some onlookers hated the idea.</figcaption></figure>



These platforms let users open prediction markets about any topic whatsoever, with no permission necessary. Smart contracts maintain the odds and settle bets, in cryptocurrency, with no dodgy middlemen and most importantly — no censorship.



Like all interesting software, Augur’s limits were quickly tested after its launch in 2018 — by very <a href="https://futurism.com/augur-assassination-marketplace-decentralized-blockchain">dramatic</a> assassination markets.&nbsp;



One minute, you’re cheekily betting that the queen would live until 2025. The next, you’ve essentially put out a hit on a royal family member — someone could take the opposite side, kill them, and win the bet. 



In that case, your bet would be the bounty (alongside anyone else’s that believed the queen would live). 



Resourceful assassins could even, hypothetically, trawl prediction markets for celebrities with loads of cash and bet on their life expectancy with a mind to cut those lives short — and then take all the ETH. Donald Trump, Warren Buffett and Jeff Bezos have all had their own life/death prediction <a href="https://www.independent.co.uk/tech/donald-trump-assassination-market-blockchain-augur-a8464516.html">markets</a> on Augur.



Augur has never inspired any real-life assassinations, but Polymarket’s Titanic sub market is a 2023 iteration of the same scenario, just on Polygon. Crypto edgelords betting on whether people would die.



Because these bets take place on apps such as Polymarket and Augur that serve as conduits for blockchain activity, censorship of betting terms is a very tricky subject.&nbsp;



These platforms are commonly known as “decentralized apps,” as their associated smart contracts exist on chain, but they still rely on centralized front-end apps often maintained by a company or software studio. Without these apps, users would need to <a href="https://docs.etherscan.io/tutorials/signing-raw-transactions">code</a> their own so-called “raw” transactions to be added to the blockchain.&nbsp;



But while the apps themselves are censorable — Polymarket developers really could figure out ways to censor its app for any input involving “death,” or “die” or “live,” just like Augur could’ve done — those efforts would surely go to waste due to the stubborn ingenuity of the internet.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Not to mention the fact that any market that concerns human activity is also an assassination market. &quot;Will Nic go to the grocery store tomorrow&quot; expresses the joint probability of me 1) going to the store and 2) my state of being alive&mdash; nic 🌠 carter (@nic__carter) <a href="https://twitter.com/nic__carter/status/929890186498052102?ref_src=twsrc%5Etfw">November 13, 2017</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">As Nic Carter pointed out in 2017, any human activity can be an assassination market — technically</figcaption></figure>



And you can also always code prediction markets <a href="https://medium.com/coinmonks/building-a-prediction-market-on-ethereum-with-solidity-a-use-case-study-bcf3ea6df47f">yourself</a>, bypassing the app altogether. Once the associated smart contracts deploy to Ethereum, they can’t be censored (unless the chain was rolled back, however unlikely it may be).



Rather than opine on the morality of such betting activities — especially as <a href="https://twitter.com/nic__carter/status/929885120248422400/photo/1">one alternative</a> is to codify moral absolutism on the blockchain, a whole other can of worms — it’s better to stress that absurd prediction markets like these are features, not bugs, of a decentralized Web3.&nbsp;



At risk of “free speech” cliches, it’s a waste of time to fixate on all the deplorable ways decentralized tech can be used, especially for those even remotely interested in supporting the concept of permissionless systems. If you can censor prediction markets, you can censor the money, rendering this whole crazy endeavor entirely moot.



The Polymarket backlash shows a demand for censorship at the app level which almost completely nullifies the promise and benefits of these protocols.&nbsp;



Censoring apps of any kind — be they gambling, social media or Ponzi game — for activity we don’t like is a very Web2 solution to a Web3 &#8220;problem&#8221; that can&#8217;t be solved.



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<div class="wp-block-post-author-biography">David is an Editor based in the Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb&#8217;s crypto vertical before launching Protos in 2021. He&#8217;s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co</div>


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Gambling on the Titanic sub sucks, but leave moral outrage in Web2

Casey Wagner

<div id="highlights-block_61d82bef7f312" class="highlights">
 <ul>
 <li>US regulatory organizations have promised to take a closer look at the digital asset industry, and they are starting now</li>
 <li>Cryptocurrency companies prep for greater scrutiny with expanded legal and compliance teams</li>
 </ul>
 
</div>



As most cryptocurrencies kick off the new year in the red, there is another cloud looming over the industry: harsher regulation.&nbsp;



US policymakers sent signals in the final months of 2021 that greater oversight of the emerging asset class is imminent. Congressional hearings on <a href="https://cms.blockworks.co/senators-cant-agree-on-path-for-stablecoin-regulation-during-hearing/" target="_blank" rel="noreferrer noopener">stablecoins</a> and the <a href="https://cms.blockworks.co/crypto-industry-will-move-offshore-if-congress-doesnt-act-executives-warn/" target="_blank" rel="noreferrer noopener">future of finance</a>, coupled with less-than-savory comments from <a href="https://cms.blockworks.co/gensler-says-centralized-regulation-is-path-for-crypto/" target="_blank" rel="noreferrer noopener">regulatory leaders</a> and <a href="https://cms.blockworks.co/fed-gov-waller-most-crypto-has-zero-value-and-is-not-a-threat/" target="_blank" rel="noreferrer noopener">central bank officials</a>, has painted an uncertain future for the digital asset industry.&nbsp;



<h3 class="wp-block-heading">‘Decentralized’ means nothing to regulators&nbsp;</h3>



If the Commodity Futures Trading Commission (CFTC)’s <a href="https://cms.blockworks.co/cftc-fines-crypto-betting-service-polymarket-1-4-million-orders-shutdown/" target="_blank" rel="noreferrer noopener">cease and desist order and fine</a> against Polymarket, the popular cryptocurrency betting platform, is any indication, policymakers are looking to rein in decentralized finance platforms.&nbsp;



<blockquote class="wp-block-quote">“I think it&#8217;s a clear signal that the CFTC, and US regulators more broadly, really aren&#8217;t going to tolerate a situation where DeFi markets and platforms allow activity to occur outside of the regulated sector,” said David Carlisle, head of policy and regulatory affairs at Elliptic.&nbsp;</blockquote>



The actions taken against Polymarket, which became public on Monday, the first business day of 2022, are only foreshadowing what is to come, Carlisle said. The regulatory crackdown challenges the fundamental principle of decentralization in the digital asset space.



“Despite the fact that this is a platform that uses smart contracts and claims to be decentralized, there are still people behind this platform, operating it, marketing it, enabling people to trade and access the market,” Carlisle said. “Despite the fact that the underlying technology is effectively decentralized.”&nbsp;



Regulators are indifferent to the fact that some platforms claim to be decentralized, Carlisle said, and if there is someone that can be held accountable, that is what is going to happen.&nbsp;



The CFTC noted in its statement that Polymarket was cooperative with investigators. The platform agreed to shut down the three markets in violation of compliance laws. Working with regulators is going to be an essential part of advancing the industry, Carlisle said.&nbsp;



<h3 class="wp-block-heading">Stablecoin regulation&nbsp;</h3>



From Federal Reserve Chairman Jerome Powell’s comments to the Congressional hearing, US officials took a closer look at stablecoins in 2021. It is a trend likely to continue into 2022, especially given the recent public policy agenda, experts predict.&nbsp;



“If the Fed really wants to get a central bank digital currency out there in the short term, like a digital dollar, for example, then they&#8217;ll be focusing more on stablecoins because they want to understand how well their regulatory regime would work,” said Michael Fasanello, director of training and regulatory affairs at the Blockchain Intelligence Group.&nbsp;&nbsp;



Powell said in July 2021 that creation of a CBDC may help curb demand for stablecoins such as Tether (USDT) and US Dollar Coin (USDC), which he said may pose a threat to consumers.&nbsp;



Regardless of whether a CBDC will come in 2022 (Powell has hinted that <a href="https://cms.blockworks.co/powell-us-does-not-have-to-be-first-with-a-cbdc/" target="_blank" rel="noreferrer noopener">it may be a long way off</a>), stablecoins do not exist outside regulatory bounds.&nbsp;



“Stablecoins are like money market funds, they’re like bank deposits, but they’re, to some extent, outside the regulatory perimeter and it’s appropriate that they be regulated,” Powell said in September 2021 during testimony before the House Financial Services Committee. “Same activity, same regulation.”&nbsp;



US Securities and Exchange Commission Chairman Gary Gensler agrees. He has referred to stablecoins, which are designed to trade and fluctuate like US dollars, as “<a href="https://cms.blockworks.co/secs-gensler-stablecoins-are-poker-chips/" target="_blank" rel="noreferrer noopener">poker chips</a>.”&nbsp;



Stablecoins present a new challenge to regulators because they do not fit neatly within the existing regulatory structure and process as traditional financial products, Fasanello said.



“With stablecoins, we really haven&#8217;t had that sort of typology or methodology, so arguably the Fed might spend a little bit more time with that, at least at the forefront,” he said.&nbsp;



<h3 class="wp-block-heading">Where we stand&nbsp;</h3>



One of the key roadblocks to greater regulatory clarity around the digital asset space is the question of jurisdiction, policymakers and industry members agree.



<blockquote class="wp-block-quote">“You&#8217;re seeing the CFTC, the SEC, the Fed, all of these different groups that want to be the tip of the spear for regulation,” Fasanello said. “I think that really what they should be looking for is a whole-government approach.”&nbsp;</blockquote>



While industry members anticipate further CFTC actions, other government organizations already have crypto on the agenda for 2022. The SEC’s <a href="https://cms.blockworks.co/one-year-after-sec-lawsuit-ripple-ceo-says-2021-was-their-best-year-yet/" target="_blank" rel="noreferrer noopener">battle with Ripple</a> over XRP continues into the new year, and Congress has recently announced an additional hearing to take place as soon as January 2022 to discuss the environmental impact of cryptocurrency mining.&nbsp;



More and more companies in the cryptocurrency space are expanding their teams to include legal experts and compliance officers, including <a href="https://cms.blockworks.co/coinbase-hires-morgan-stanley-lawyer-to-head-enterprise-compliance/">Coi</a><a href="https://cms.blockworks.co/coinbase-hires-morgan-stanley-lawyer-to-head-enterprise-compliance/" target="_blank" rel="noreferrer noopener">n</a><a href="https://cms.blockworks.co/coinbase-hires-morgan-stanley-lawyer-to-head-enterprise-compliance/">base</a> and <a href="https://cms.blockworks.co/binance-us-new-risk-officer-crypto-industry-must-educate-regulators/" target="_blank" rel="noreferrer noopener">Binance.US</a>. Others have released public statements outlining intentions and visions for how the regulatory landscape should look, including <a href="https://blog.ftx.com/policy/ftx_key_principles/" target="_blank" rel="noreferrer noopener">FTX</a> and <a href="https://cms.blockworks.co/ftx-follows-coinbase-ripple-in-releasing-regulatory-framework/" target="_blank" rel="noreferrer noopener">Ripple</a>.&nbsp;



Cryptocurrency is too broad to fit under one organization’s umbrella, Fasanello said. Regulators must look at crypto as a security, commodity, disruptive technology and currency, while also considering consumer protection, anti-money laundering and anti-terrorism efforts.&nbsp; “I&#8217;d expect the CFTC and the SEC to be probably the most active US agencies that we&#8217;ll see,” said Carlisle. “I think we&#8217;ll see the US Treasury and also potentially state level organizations and regulators in the US start to dive deeper and deeper into this space and take a closer look at it, it is going to be a multi agency approach, ultimately.



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Crypto Companies Brace for Year of Regulation in 2022

<div id="highlights-block_61d376d1b3ddb" class="highlights">
 <ul>
 <li>The CFTC filed a cease and desist order against popular crypto betting platform Polymarket</li>
 <li>The startup allowed users to bet on anything from election results to celebrity engagements to earn cryptocurrencies</li>
 </ul>
 
</div>



The Commodity Futures Trading Commission (CFTC) took its first public action against decentralized finance (DeFi) companies of the year on Monday. 



The regulator fined cryptocurrency betting platform Blockratize Inc., which operates under the name Polymarket, $1.4 million. The CFTC has also ordered the New York-based company to wind down “all markets displayed on Polymarket.com that do not comply with the Commodity Exchange Act (CEA),” according to a <a href="https://www.cftc.gov/PressRoom/PressReleases/8478-22" target="_blank" rel="noreferrer noopener">statement</a> from the CFTC. 



Polymarket enables users to bet on current events, including politics and pop culture, using cryptocurrencies. Popular bets of the past year included whether or not Jennifer Lopez and Ben Affleck would get engaged or if the United States would reach 100,000 new daily coronavirus cases before Jan. 1, 2022.&nbsp;&nbsp;



Users select one of at least two options for the given scenario and place bets, which, under federal law, qualifies the markets as swaps. The CFTC reports that Polymarket has offered more than 900 different event markets since its inception in 2018.&nbsp;



Polymarket failed to obtain a Designated Contract Market (DCM) and Swap Execution Facility (SEF) registration, both requirements under the CEA, the CFTC said.&nbsp;



“All derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space,” acting director of enforcement, Vincent McGonagle, said in a statement. “Market participants should proactively engage with the CFTC to ensure that our markets remain robust, transparent, and afford customers the protection provided under the CEA and our regulations.”



Polymarket responded to the filing late Monday afternoon via Twitter.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We’re pleased to confirm that we&#39;ve successfully agreed to a settlement with the CFTC, &amp; are excited to move forward &amp; focus on the future of Polymarket. As per the order, the 3 markets lasting past 1/14 that don&#39;t comply with the Act will be prematurely resolved. More soon 🔮&mdash; Polymarket (@PolymarketHQ) <a href="https://twitter.com/PolymarketHQ/status/1478132679510048773?ref_src=twsrc%5Etfw">January 3, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<a href="https://www.bloomberg.com/news/articles/2021-10-23/crypto-venue-for-bets-on-trump-jlo-and-covid-faces-u-s-probe" target="_blank" rel="noreferrer noopener">Reports</a> that the CFTC was investigating Polymarket first surfaced in October 2021. The company secured a $4 million seed funding round the same month. Polychain Capital was a lead investor.&nbsp;



Polymarket cooperated with the investigation, the CFTC report noted, which helped the company secure a lower fine. All Polymarket markets will end by Jan. 14, 2022, and refunds will be available to users by Jan 24.



This story was updated on Jan. 3, 2022, at 10:09 pm ET to add additional information and a statement from Polymarket.



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