In a striking illustration of the challenges facing regulators in the digital age, new data shows that U.S. citizens have continued to trade heavily on the decentralized prediction market platform Polymarket, despite the platform's explicit ban on serving American users. According to on-chain analysis firm Allium, wallets linked to the United States traded approximately $571 million in political contracts over the past twelve months, making Americans the largest national cohort of traders on the platform—ahead of any other country.
The revelation underscores a persistent tension between the decentralized ethos of blockchain-based platforms and the jurisdictional reach of traditional financial regulators. Polymarket, which operates as a blockchain-based prediction market, voluntarily blocked U.S. access in 2022 after the Commodity Futures Trading Commission (CFTC) charged the platform for failing to register as a derivatives exchange. However, the ban has proven porous, with sophisticated users bypassing geolocation restrictions through virtual private networks (VPNs) and other methods.
The Allium Analysis
Allium, a firm specializing in on-chain data analytics, traced the wallet activity by identifying patterns consistent with U.S. residency. The analysis considered factors such as IP addresses associated with transactions, the use of U.S.-based centralized exchanges to fund wallets, and the timing of trades relative to American time zones. The firm found that U.S.-linked wallets accounted for roughly 30% of all political trading volume on Polymarket over the past year, totaling $571 million. This far exceeded the volume from any other single country, with second-place Canada contributing less than $100 million.
The breakdown of betting patterns revealed a notable divergence from the behavior seen on regulated U.S. markets. While American traders on Polymarket did engage in election-related bets—such as U.S. presidential races and congressional outcomes—they were disproportionately drawn to geopolitical and international conflict markets. For example, markets on the Russia-Ukraine war, the Israel-Hamas conflict, and potential territorial disputes in the South China Sea saw heavy activity from U.S. wallets. These markets are typically not offered by regulated U.S. prediction platforms like PredictIt or Kalshi, which are bound by CFTC rules that limit the scope of permissible contracts.
Regulatory Implications
The persistent offshore activity by U.S. traders poses a dilemma for regulators. On one hand, the ban has clearly failed to prevent participation, raising questions about the effectiveness of unilateral restrictions on decentralized platforms. Polymarket's smart contracts are immutable and hosted on the Ethereum blockchain, meaning that—unlike a centralized website—the platform cannot easily be shut down or fully geofenced. Even if Polymarket were forced to block all U.S. IP addresses, wallets controlled by Americans could still interact directly with the smart contracts through decentralized interfaces.
On the other hand, bringing such markets onshore under U.S. oversight would require a significant expansion of the CFTC's authority or the creation of a new regulatory framework. Proponents argue that regulated prediction markets provide valuable information aggregation and can help forecast events more accurately than traditional polling. Critics, however, warn that these markets can be manipulated by well-funded actors and may create perverse incentives, such as betting on violent outcomes.
The CFTC has taken a cautious approach. In 2023, the agency proposed a rule that would prohibit event contracts on political contests, including election betting, on the grounds that such contracts could undermine the integrity of elections. However, that rule has not been finalized, and the agency has faced lawsuits from platforms like Kalshi. Meanwhile, Polymarket has remained defiant, with its CEO, Shayne Coplan, arguing that prediction markets are a form of free speech protected by the First Amendment.
American Traders Not Smarter, Just More Active
Interestingly, the Allium data also found that U.S. traders were no better at predicting outcomes than their international counterparts. The overall win rate for American wallets was broadly in line with the global average, hovering around 50-55% for binary markets. This suggests that the volume is driven by U.S. traders having higher disposable income for speculative activity and greater familiarity with cryptocurrency, rather than any informational advantage.
“The U.S. is the largest market for retail crypto trading, so it’s not surprising that Americans dominate Polymarket volume,” said a blockchain analyst who spoke on condition of anonymity due to the sensitivity of the topic. “But their success rate is unremarkable. The real story is the sheer scale of unregulated activity and what it says about the demand for these markets.”
Historical Context and Future Outlook
Polymarket launched in 2020 and quickly gained popularity as a platform for betting on everything from the 2020 U.S. presidential election to the outcome of the COVID-19 pandemic. Its blockchain-based architecture allowed for trustless settlement and immediate payouts via smart contracts, features that set it apart from traditional betting exchanges. By 2021, the platform was processing hundreds of millions of dollars in monthly volume, attracting the attention of regulators.
The CFTC crackdown in 2022 followed a similar pattern to earlier actions against other prediction markets. In 2012, the agency shut down Intrade, a popular political prediction market, for offering options on U.S. political events. More recently, the agency has taken a mixed stance, allowing some academic and small-scale markets like PredictIt to operate under no-action letters while challenging larger commercial platforms. The Polymarket case is particularly significant because of the platform's decentralized nature, which makes enforcement difficult.
Despite the ban, Polymarket has continued to innovate. In 2024, the platform introduced conditional markets, allowing traders to bet on chains of events, and expanded into sports and entertainment. The company also raised $45 million in Series B funding from investors including Founders Fund and Paradigm, valuing the firm at over $300 million. The investment suggests that venture capital remains bullish on the long-term potential of decentralized prediction markets, even as regulatory clouds gather.
The $571 million figure represents only a portion of Polymarket's total trading volume, which exceeded $2 billion for all markets in the past year. The rest largely came from international users in countries with more permissive regulatory environments, such as South Korea, the United Kingdom, and Nigeria. However, no single country came close to matching the U.S. contribution.
The Policy Dilemma
The situation highlights a broader challenge for financial regulators in the age of blockchain. Traditional enforcement mechanisms—such as cease-and-desist letters, fines, and criminal charges—are less effective when the target is a decentralized network with no central operator. Polymarket itself is a company registered in Delaware and operates as a traditional startup, but its core product is built on immutable smart contracts. Even if the company were forced to shut down its website, the smart contracts would remain on the blockchain, potentially accessible through alternative front-ends.
Regulators could target the on-ramp—the exchanges and payment processors that allow users to fund their Polymarket accounts. Many U.S. users move cryptocurrency from regulated exchanges like Coinbase or Kraken to their own wallets before interacting with Polymarket. Policing these transactions is possible but resource-intensive. Some exchanges have begun flagging addresses associated with prediction markets and restricting withdrawals, but this approach is far from comprehensive.
An alternative approach would be to create a legal framework for onshore prediction markets that balances the benefits of information aggregation against the risks of manipulation. This could involve licensing requirements, position limits, and disclosure rules similar to those governing commodity futures markets. However, such a framework would require legislation from Congress, which has shown little appetite for addressing the issue. The 2024 Farm Bill included provisions to study prediction markets, but no substantive changes were enacted.
Meanwhile, the offshore market continues to grow. Polymarket has hinted at expanding into new verticals, such as insurance and supply chain forecasting, which could further blur the line between betting and legitimate hedging. The platform's success has also spurred competitors, such as SX Network and Vega Protocol, to launch similar blockchain-based marketplaces.
The $571 million in U.S. trading volume is thus a symptom of a deeper regulatory mismatch. As long as demand for political prediction markets remains strong and legal alternatives are limited, Americans will likely continue to find ways to participate, regardless of bans. Policymakers face a choice: either close the loopholes more effectively, or bring the activity into the regulated fold. Neither option is easy, but the data from Allium makes clear that the status quo is unsustainable.
Source: Coindesk News