Is Polymarket Safe or Legal to Use? A Practical Guide After the Insider-Trading Arrest

Note: This article is for information only and not legal or investment advice.

If you’re asking whether it’s legal to use Polymarket in the United States, the short answer is: Generally, no. Polymarket settled with US regulators in 2022 and restricts US persons. Using workarounds like VPNs can add legal and compliance risk.

If you’re wondering whether you can get in trouble for trading event outcomes based on inside or classified information, the answer is yes. A recent arrest reported by WIRED describes a US Special Forces master sergeant accused of placing Polymarket bets informed by classified intelligence about an operation targeting Venezuela’s president. It’s the first publicly reported US arrest tied to “insider trading” on a prediction market—signaling a clear enforcement shift.

What changed, and why it matters

• First public arrest: Authorities reportedly arrested a US service member for using nonpublic, classified information to trade on Polymarket about a high-profile geopolitical event. Even though prediction markets aren’t stocks, prosecutors can use other criminal statutes (for example, misusing classified or government information, or fraud theories) to bring cases.
• Enforcement is catching up: Regulators and law enforcement have long targeted unregistered event markets and off-exchange derivatives. This case shows they’re now also willing to treat misuse of nonpublic information on prediction markets as a prosecutable offense.
• Practical takeaway: Treat prediction markets with the same (or greater) compliance caution you’d apply to securities trading. If you have access to material nonpublic information—especially as a government, military, or corporate insider—do not trade on it anywhere.

Quick background: Polymarket and US rules

• Polymarket is a crypto-based prediction market where users trade shares tied to real-world outcomes (e.g., elections, policy decisions, sports, crypto milestones). It settles in stablecoins and runs on blockchain infrastructure.
• In 2022, the US Commodity Futures Trading Commission (CFTC) announced a settlement with Polymarket over offering off-exchange event contracts without required registrations. Polymarket paid a civil penalty and agreed to restrict US users.
• Since then, Polymarket has implemented geo/KYC measures. US persons are generally not permitted. Attempting to bypass restrictions can add legal risk and violate platform terms.

Who should read this guide

• US-based retail traders considering prediction markets
• Government, military, and public-sector employees with access to nonpublic information
• Corporate insiders, journalists, consultants, and contractors handling confidential data
• Founders and operators of prediction-market or event-contract platforms
• Compliance, legal, and risk teams evaluating policy and monitoring gaps

Can you use Polymarket in the United States?

Short version: Generally not. Polymarket restricts US persons following its 2022 settlement. If you’re a US resident or otherwise a “US person,” you should assume you cannot lawfully use Polymarket. Using VPNs or foreign IDs to evade controls may violate platform terms and potentially US law, and it increases your personal risk exposure.

If you want regulated exposure to event-style markets from the US, consider alternatives that operate under US regulatory frameworks (see the “Safer alternatives” section below).

Is “insider trading” a thing on prediction markets?

While classic insider-trading law focuses on securities, prosecutors have other ways to charge misconduct involving nonpublic or classified information, including:

• Misuse of classified or government information
• Fraud or wire-fraud theories under federal law
• Theft or conversion of government property/information
• Computer misuse or related offenses if systems are involved

In plain English: If you use nonpublic information that you’re obligated to keep confidential, and you profit from it on a prediction market, you can still face serious criminal exposure—even if the market isn’t a stock exchange.

Key point: Platform terms usually prohibit trading on misappropriated or inside information. Even where “insider trading” statutes don’t apply, other criminal statutes and employment rules can.

Risk checklist: What you’re actually taking on

• Legal/regulatory risk
  • Using restricted platforms as a US person
  • Misusing nonpublic/inside information
  • Violating platform terms (KYC/AML, sanctions, VPN evasion)
• Custody and smart-contract risk
  • Bugs, hacks, or bridge risks
  • Stablecoin or chain outages
• Oracle and resolution risk
  • Disputes about how a market is resolved
  • Ambiguous question wording
• Market-structure risk
  • Liquidity gaps, slippage, and manipulation
  • Whales or coordinated traders skewing prices
• Counterparty/platform risk
  • Platform shutdowns, regulator actions, or sanctions events
• Tax and reporting risk
  • Winnings are generally taxable; poor record-keeping can cause issues

What the arrest signals for different groups

• Military and federal employees: Treat prediction markets as restricted terrain. Trading on anything related to your work or classified information is a hard no. Expect internal policy updates, mandatory training, and potential monitoring.
• Corporate insiders and consultants: If you work on market-moving events (e.g., M&A, product launches, regulatory decisions), avoid trading related markets anywhere—including “fun” or crypto-native platforms.
• Journalists and campaign staff: Trading on stories you’re reporting or campaigns you work on can be construed as misuse of nonpublic plans. Expect newsroom and campaign compliance policies to tighten.
• Founders and DAOs: Build controls to detect abuse, respond to law-enforcement requests within legal bounds, and maintain strong resolution governance. Expect more scrutiny of KYC, sanctions screening, and market listings.

How to participate responsibly in prediction markets

• Don’t trade on nonpublic information
  • If your knowledge comes from work, a duty of trust, or classified channels, do not trade on it—anywhere.
• Respect geo/KYC rules
  • If a platform blocks US persons, don’t circumvent. Violating terms can compound risk.
• Choose regulated venues when in the US
  • Consider CFTC-regulated event-contract markets for permissible markets and topics.
• Read resolution policies carefully
  • Understand decision criteria, data sources (“oracles”), and appeal processes before betting.
• Manage position sizing and liquidity risk
  • Thin order books can magnify losses. Size positions for worst-case slippage.
• Track everything for taxes
  • Keep clear records of deposits, trades, fees, and withdrawals. Expect volatility in taxable income timing.

Safer alternatives for US users

Below are commonly referenced options. Availability, listings, and rules can change—verify current status directly with each venue.

• Kalshi (US, regulated)

  • What it offers: CFTC-regulated exchange listing certain real-world event contracts (e.g., inflation prints, macro indicators, weather-related metrics). Political-election markets have faced regulatory pushback.
  • Who it’s for: US users who want a regulated venue for select event exposures.
  • Pros: Regulatory oversight, KYC/AML, clearer recourse.
  • Cons: Limited topic scope; listing decisions subject to regulatory review.

• CME Group “Event” contracts (US, regulated)

  • What it offers: Small-stake, daily up/down contracts tied to approved futures underlyings (not real-world policy or politics).
  • Who it’s for: Users seeking bite-sized market exposure in a heavily regulated setting.
  • Pros: Institutional-grade infrastructure.
  • Cons: Not a substitute for “Will X happen?” style markets.

• Nadex (US, regulated)

  • What it offers: CFTC-regulated binary options on financial underlyings.
  • Pros: Clear rulebook and compliance.
  • Cons: Financial-market focus, not broad real-world events.

• PredictIt (political markets; regulatory status has been fluid)

  • What it offers: Long-running political prediction markets with historical no-action relief that has been contested by regulators. Operational status and constraints have changed over time.
  • Caveat: Check current legal status before using; availability may shift with litigation and regulator decisions.

• Outside the US: Betfair Exchange, Smarkets, and others

  • Often licensed in Europe; generally not available to US residents. Respect geo/KYC rules and local laws.

Polymarket vs regulated US options: Trade-offs

• Access and scope
  • Polymarket: Broad range of topical, newsy markets; crypto-native user experience. Restricted for US persons.
  • Regulated US venues: Narrower scope but clearer legal standing.
• Liquidity and pricing
  • Polymarket can have deep liquidity on headline events; fees vary by market and side.
  • Regulated venues may have tighter parameters and less retail crowd liquidity, but transparent rulebooks.
• Legal safety
  • Polymarket: Higher US legal risk due to access restrictions and past enforcement.
  • Regulated venues: Lower regulatory risk for US users, provided you follow rules.

How platforms think about “insider” activity

Prediction markets aren’t exempt from market-abuse concerns. Leading platforms commonly:

• Ban trading on misappropriated or confidential information in their terms
• Monitor unusual flows and timing relative to announcements
• Freeze or investigate suspicious accounts, and cooperate with lawful requests
• Tighten market-resolution rules to reduce ambiguity

For users, that means sudden, outsized, or well-timed bets can draw scrutiny—especially if linked to nonpublic sources.

Organizational playbook: Policies that reduce risk

• Create or update a policy covering prediction markets
  • Define prohibited trading tied to the company’s confidential information.
• Blackout lists and preclearance
  • Similar to securities policies: require approval for markets closely related to the business.
• Training and attestations
  • Educate staff on what counts as nonpublic information across all markets—not just stocks.
• Incident response
  • Set up channels for reporting suspected misuse; outline steps for internal investigations.
• Vendor and contractor clauses
  • Extend policies to agencies, consultants, and contractors with access to your data.

If you’re a US person who already used Polymarket

• Stop trading and review your exposure
  • Don’t try to hide or destroy records; that can create separate liabilities.
• Document everything
  • Preserve trade histories, deposits, and withdrawals for tax and legal counsel.
• Seek qualified legal advice
  • A lawyer can help evaluate risk and next steps based on your circumstances.
• Don’t compound issues
  • Avoid further evasion (VPNs, new accounts). Consider winding down if permitted by the platform’s rules.

How to evaluate any prediction-market platform

• Jurisdiction and regulation
  • Where is it based? Who regulates it? Are you allowed to use it?
• KYC/AML and sanctions controls
  • Expect identity checks if it serves your region legally.
• Market design and resolution policy
  • Is the question unambiguous? What sources determine the outcome? Is there an appeal path?
• Liquidity and fees
  • Check order-book depth, spread, and all-in fees, including withdrawal costs.
• Technical security
  • Smart-contract audits, custody model, and incident history.
• Governance and transparency
  • Who can list or delist markets? How are disputes handled? Are changes logged and explained?

The road ahead: Regulation will define the winners

The reported arrest is a watershed moment: Law enforcement is signaling that misusing nonpublic information on prediction markets won’t be tolerated. For everyday traders, the safest path—especially in the US—is to stick with regulated venues and stay far away from trading on anything you’ve learned through confidential or classified channels. For platforms, the path to durable growth likely runs through clearer regulation, rigorous market-resolution rules, and stronger compliance.

Key takeaways:

• US residents should generally avoid Polymarket; consider regulated alternatives.
• Using nonpublic or classified information to trade prediction markets can lead to criminal charges.
• Expect more compliance scrutiny across the ecosystem—users, employers, and platforms alike.

FAQ

• Is Polymarket legal to use in the US?

  • Generally no. After a 2022 settlement with US regulators, Polymarket restricts US persons. Do not evade geo/KYC controls.

• Can I be prosecuted for “insider trading” on a prediction market?

  • Yes, if you misuse nonpublic or classified information, prosecutors can bring charges under various laws—even if it isn’t a stock trade.

• Are winnings from prediction markets taxable?

  • Typically yes. Keep detailed records of trades, fees, and withdrawals, and consult a tax professional.

• Is using a VPN a safe workaround?

  • No. It can violate platform terms and raise legal risk. Evasion is a red flag for investigators.

• What’s a safer US alternative to Polymarket?

  • Consider regulated venues like Kalshi for permitted event contracts, or CME/Nadex for financial-market binaries.

• Can journalists, campaign staff, or government employees trade on related topics?

  • They should avoid trading on anything tied to their work or nonpublic plans. Employers may impose strict prohibitions.

• How do platforms detect “insider” trading?

  • Through monitoring for unusual flows and timing, KYC links, and cooperation with lawful information requests.

• What if a market is resolved incorrectly?

  • Read resolution policies and appeals. Ambiguity is a known risk—factor it into position sizing and expected returns.

Source & original reading: https://www.wired.com/story/us-special-forces-soldier-allegedly-profited-off-of-maduro-capture-on-polymarket/