Original Authors: Deng Xiaoyu, Li Haojun

Recently, the global decentralized prediction market platform Polymarket launched a simplified Chinese interface, attracting significant attention in the domestic market.

Does the “Chinese interface” of an overseas financial platform mean it is opening the door to the Chinese market? The answer is likely affirmative.

In the eyes of regulators in our country, this behavior itself sends a clear signal—the platform intends to target residents within China for business, and thus will place itself under the jurisdiction and scrutiny of Chinese law.

Polymarket, an overseas prediction platform that has recently gained attention for launching a simplified Chinese version. Users can use cryptocurrencies to “bet” on the outcomes of various events. This type of gambling-like business, is it a financial innovation or does it tread the line of legal gray areas?

This article will penetrate its business model, clarify the true nature of Polymarket under Chinese law based on current domestic regulations, and clearly reveal: whether ordinary users or promoters, what legal red lines and specific risks they may face by participating?

Model Analysis: Named “Prediction,” but Actually “Gambling”?

On the Polymarket platform, users can use USD stablecoins (such as USDC) to “bet” on the outcomes of various events. However, from the perspective of Chinese law, its business structure mainly presents the following three key characteristics:

1. “Either-or” Gambling Structure

The Polymarket platform simply designs event outcomes as “yes or no” opposing options, where users buy and sell these options, and price fluctuations reflect the market's expectations of the probability of the event occurring. After the event concludes, cash settlement is made directly based on the result, with winners profiting and losers losing.

2. Speculative Behavior Based Entirely on “Luck”

Users' earnings depend entirely on uncertain future events (such as election results, sports outcomes), with no actual value creation involved, and lacking the function of hedging risks, it is essentially a probability-based speculative behavior.

3. Full Cryptocurrency Settlement

All fund flows are completed through cryptocurrencies like USDC on the Polygon blockchain, completely detached from traditional banking and foreign exchange regulatory systems, and out of the sight of Chinese financial monitoring.

Legal Qualification: Financial Innovation or Illegal Activity?

Although in some countries like the United States, such prediction markets may fall under regulatory categories, under the legal framework of mainland China, due to its lack of licensed access and obvious speculative attributes, its legal qualification is entirely different and more severe.

From the perspective of Chinese legal practice, Polymarket's business model is highly likely to be simultaneously identified as “illegal financial activity” and “online gambling,” and is very likely to become a money laundering channel:

1. Qualification as Illegal Financial Activity

According to the notice issued by the People's Bank of China and ten other ministries in 2021 titled “Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation” (Yin Fa [2021] No. 237):

“Overseas virtual currency exchanges providing services to residents within our country through the internet also constitute illegal financial activities. For relevant domestic staff of overseas virtual currency exchanges, as well as legal entities, non-legal entities, and individuals who knowingly or should have known that they are engaged in virtual currency-related businesses and still provide marketing, payment settlement, technical support, etc., legal responsibility will be pursued in accordance with the law.”

As an overseas platform, if Polymarket provides derivative trading based on virtual currencies to residents within the country through a Chinese interface, it clearly falls within the scope of the aforementioned prohibitive regulations.

2. Substantially Recognized as Online Gambling

Judicial authorities adopt the principle of “substance over form.” Although the platform is named “prediction market,” it fully meets the three elements of gambling:

• Investment of funds
• Reliance on random results
• Existence of winning and losing of property

In the absence of a financial license and not serving the real economy, its nature is no different from online gambling.

3. New Type of Money Laundering Channel Risk

Due to its anonymity and hedging mechanism, the platform is easily used for “hedging money laundering”: actors can control multiple accounts to bet on opposing outcomes simultaneously, and after paying a small fee, disguise illegal funds as “betting profits,” thus violating the money laundering crime in the Criminal Law.

Legal Risk Analysis for Participants in Mainland China

Based on the degree of participation and roles, the legal risks faced by entities in mainland China (including individuals and institutions) vary significantly.

1. Ordinary Users: Risks of Individual Participation

For individuals in mainland China who access the platform and conduct personal transactions solely through technical means, the main risks are administrative penalties and fund compliance risks.

• Administrative Violations:

They may face public security management penalties for participating in gambling with large stakes, including detention and fines.

• Criminal Risks:

Since Polymarket uses USDC and other virtual currencies for settlement, if users come into contact with criminal funds related to telecom fraud or gambling during the deposit and withdrawal process (OTC transactions), they may be deemed to be concealing or disguising criminal proceeds.

• Political and Review Risks:

Participating in predictions involving political figures or sensitive events may attract attention and investigation from relevant authorities.

2. Promoters and Agents: High-Risk Roles

For entities in mainland China that promote Polymarket through social media, private community groups, publish invitation links, provide trading guidance, form signal groups, or offer technical access services, they face extremely high criminal legal risks.

Gambling Operation Crime: If they develop subordinates through invitation links and take a cut, judicial practice often recognizes this as “acting as an agent for a gambling website.” Those with serious circumstances may face imprisonment of five to ten years.

Assisting Information Network Criminal Activities: Even if they do not directly profit, knowingly providing advertising promotion, technical support, etc., while being aware that the platform is involved in criminal activities, may also constitute this crime, facing imprisonment of up to three years.

Regulatory Trends and Compliance Recommendations

Currently, China maintains a strict crackdown on cross-border online gambling and illegal virtual currency trading. The launch of the simplified Chinese interface by Polymarket is likely to attract significant attention from regulatory agencies. Based on the above risk analysis, Mankun Lawyers provide the following recommendations for different groups:

1. Practitioners and Promoters: Uphold Legal Bottom Lines

Please do not act as agents, promoters, or provide any support for overseas prediction platforms like Polymarket. If you are a self-media KOL or community operator, it is advisable to immediately cease related promotions and cut off any profit ties with the platform to avoid crossing the red line of “operating a gambling house.”

2. Ordinary Users: Protect Your Wallet

It is recommended that individual investors fully understand the legal attributes and fund risks of cross-border online gambling, to avoid having their bank accounts judicially frozen by public security agencies due to participation in such transactions, or generating administrative violation records that could affect personal credit and career development.

3. Platforms and Related Parties: Recognize Legal Boundaries

By launching a Chinese interface and other measures, Polymarket has shown a clear intention to serve Chinese users, which effectively places its business under the jurisdiction of Chinese law. Even if the operating entity is overseas, the platform and related service providers may still face risks of being blacklisted, having services blocked, or even bearing criminal liability. It is advisable for related parties to carefully assess the legal consequences of their involvement with China.

Conclusion

Financial innovation should occur within the framework allowed by laws and regulations. As an emerging economic model, prediction markets currently lack a legal access path within mainland China. For entities within the country, participating in such activities not only lacks legal protection but also faces severe administrative and even criminal liabilities. It is recommended that all market participants remain rational and strictly adhere to compliance bottom lines.

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