Polymarket Takes €420K Dutch Gambling Fight to Court Over Crypto Prediction Markets

Key Takeaways:

• Polymarket challenges a court ruling that its prediction markets are illegal gambling in the Netherlands.
• Dutch regulator Ksa threatened to charge up to €840,000 in weekly penalties, up to a maximum of €420,000.
• Polymarket says its USDC-settled contracts are more akin to financial derivatives and warrants to be under the financial-market umbrella.

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Polymarket is heading to court to dispute the Dutch authorities’ orders and challenge their application of the ban to crypto prediction markets. The dispute could shape how event-based crypto contracts are regulated in one of Europe’s stricter gambling markets.

Polymarket has filed a lawsuit against the ban on its services in The Hague in the Netherlands. The fundamental issue in this case is whether contracts related to actual outcomes are gambles or more like financial transactions.

Polymarket is a game of chance without a licence, according to the Dutch Gambling Authority (Ksa). The platform, however, says that buyers and sellers deal in contracts with values dependent on expectations of future events.

Contracts are won and settled in the USDC stablecoin, pegged to the dollar and widely utilized throughout the crypto markets.

That structure looks more like derivatives trading than traditional betting, says Polymarket, and thus ought to be regulated by the AFM, not the Ksa.

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In January, the regulator banned Polymarket from catering to Dutch users and in February, the ban was revealed. Ksa would impose a fine of up to €840,000 per week because the platform was operating without permission.

Dutch users were later banned by Polymarket, who was found to have acted too late by the regulator. It then secured a €420,000 fine and Polymarket’s appeal of the fine was dismissed.

The platform gained significant prominence in the Netherlands when investors dumped millions of dollars into the betting on the general elections scheduled in the country next October.

This is just one aspect of the broader issue of classification in blockchain-based prediction markets, as Polymarket’s legal approach emphasizes.

The platform permits customers to trade off positions with one another, unlike a gambling establishment. The price changes with the market and traders can sell their holdings before the market closes.

Polymarket maintains that those attributes allow more control for participants than a standard gambling product, which is why it deems its contracts to be more like event derivatives. But the Dutch authorities are not as convinced.

Peer-to-peer participation does not deceive Ksa into believing that a product is not gambling in nature. Under Dutch law, bets are also restricted to a number of specified events; the category of sports betting is much more defined.

For the same reason, even if gambling is approved, it may not be a potent way for the platform to return to the country. Since 2019, the AFM has been limiting trading of binary options to retail investors, causing another hurdle for some event options, found here, to become financial instruments.

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