The Legal History: What Happened Between Polymarket and the CFTC?
January 2022: CFTC Settlement
On January 3, 2022, the Commodity Futures Trading Commission (CFTC) announced a settlement with Polymarket (operated by Blockratize Inc.) for the following violations:
- Violation 1: Operating an unregistered facility for trading event-based binary options (commodity derivatives)
- Violation 2: Offering event contracts without CFTC approval
- Penalty: $1.4 million fine
- Requirement: Wind down all services to US users
- Ban: Cannot operate in the US without CFTC registration
What This Means for US Users
As part of the settlement, Polymarket agreed to:
- Geofence the United States: Block all US IP addresses from accessing the platform
- Implement identity verification: Require users to certify they are not US persons
- Maintain records: Keep compliance documentation for CFTC review
- Pay restitution: Compensate any affected US customers
Current Status: Can US Residents Access Polymarket in 2026?
Official Policy: No
Polymarket's Terms of Service (as of January 2026) explicitly state:
"The Services are not available to persons or entities who reside in, are located in, are incorporated in, or have a registered office in the United States of America or any Prohibited Localities."
Technical Enforcement
Polymarket uses multiple methods to block US users:
- IP geolocation: Automatically blocks US IP addresses
- Self-certification: Requires users to confirm they are not US persons during signup
- Wallet monitoring: May flag wallets previously used from US IPs
- Periodic verification: Randomly checks user locations
What About Using a VPN?
While some US users attempt to access Polymarket using VPNs, this carries significant legal and financial risks:
- Terms of Service violation: Polymarket can freeze your account and seize funds
- Potential CFTC violation: Circumventing regulations may constitute illegal trading
- No legal recourse: If disputes arise, you cannot sue since you violated ToS
- Tax complications: IRS may treat winnings as illegal income (still taxable, but harder to defend)
- Account bans: Polymarket has banned users detected using VPNs
Reported VPN Detection Methods
Polymarket and similar platforms use advanced techniques to detect VPN usage:
- Browser fingerprinting: Timezone, language, system fonts mismatch with claimed location
- WebRTC leaks: Reveals your real IP even with VPN active
- Blockchain analysis: On-chain wallet activity shows previous US connections
- Payment patterns: Crypto purchased from US exchanges
Real User Reports (2024-2025)
- • Reddit user u/TraderJoe2024: $12,000 account frozen after VPN detected (funds eventually returned after 6 months)
- • Twitter reports: Multiple users reported bans during high-volume events (2024 US election)
- • Polymarket Discord: Support staff confirmed VPN usage is grounds for immediate termination
State-by-State Legality: Are There Exceptions?
Federal vs State Law
Even if a state allows prediction markets or online gambling, federal CFTC regulations override state laws for event-based derivatives.
| State Category | Examples | Polymarket Legal? | Reasoning |
|---|---|---|---|
| Online Gambling Legal | NJ, PA, MI, NV | ❌ No | Federal CFTC ban applies |
| Sports Betting Legal | 36 states | ❌ No | Event contracts ≠ sports bets |
| Crypto-Friendly States | WY, TX, FL | ❌ No | Crypto regulation separate from CFTC |
| All 50 States | US nationwide | ❌ No | CFTC settlement is federal |
Bottom line: There are NO US states where Polymarket is currently legal.
Legal Alternatives for US Residents
The good news: There are legal prediction market options for Americans in 2026.
1. Kalshi - CFTC-Regulated Prediction Market (Best Option)
- CFTC-regulated: First and only CFTC-approved prediction market exchange in the US
- Available markets: Elections, Fed interest rates, economic data, weather, awards shows
- USD deposits: Link your bank account (no crypto needed)
- Legal protection: Regulated entity, consumer protections apply
- Tax reporting: Automatic 1099 forms for tax season
Note: Kalshi has fewer markets than Polymarket but is adding new categories monthly. As of Jan 2026, offers 200+ active markets.
2. Robinhood Predictions (via Kalshi Partnership)
In late 2024, Robinhood partnered with Kalshi to offer prediction markets directly in the Robinhood app.
- Access: Available to all Robinhood users (100M+ users)
- Markets: Same as Kalshi (elections, economics, sports)
- Advantage: Seamless integration with your existing Robinhood account
- Disadvantage: Smaller market selection compared to standalone Kalshi
3. PredictIt (Shutting Down - Avoid)
PredictIt was another CFTC-approved prediction market, but it's shutting down in 2026 due to regulatory challenges.
- Status: Ceased new market creation in Q4 2025
- Recommendation: Do not create new accounts
- Existing users: Withdraw funds before final closure date (March 2026)
4. Traditional Crypto Exchanges (Indirect Play)
Instead of trading on prediction markets, you can invest in prediction market tokens:
Buy tokens that power prediction markets like Polymarket. Legal for US users and doesn't require VPNs.
- • UMA Token: Powers Polymarket's oracle system
- • MATIC/POL: Polygon blockchain (Polymarket runs on Polygon)
- • Strategy: Benefit from prediction market growth without direct trading
Risks of Using Polymarket as a US Citizen
Legal Risks
- CFTC enforcement: While rare for individual traders, the CFTC could pursue enforcement actions
- Tax evasion accusations: Unreported gambling income can trigger IRS audits
- Future retroactive prosecution: If regulations tighten, past violations could be prosecuted
Financial Risks
- Account freezes: Polymarket can lock your funds indefinitely if they detect US access
- No FDIC insurance: Unlike Kalshi (regulated), Polymarket funds have no government protection
- Smart contract risks: Bugs or hacks could result in total loss (not covered by US law)
Practical Risks
- VPN costs: Reliable VPNs cost $5-15/month and can still be detected
- Withdrawal issues: Converting crypto back to USD can trigger red flags at US exchanges
- Time investment: Constant vigilance to avoid detection (switching VPN servers, clearing cookies, etc.)
What If I Already Used Polymarket From the US?
- Stop immediately: Don't place any new trades
- Withdraw funds: Transfer all USDC to a personal wallet or US exchange
- Document everything: Keep records of deposits, trades, and withdrawals for tax purposes
- Report income: Declare any winnings on your tax return (gambling income is taxable even if illegal)
- Switch to Kalshi: Use legal alternatives going forward
Tax Reporting Requirements
Even if you accessed Polymarket illegally, you must still report winnings to the IRS:
- Form to use: Schedule 1 (Additional Income), line 8b "Other income"
- Label: "Gambling winnings" or "Prediction market gains"
- Losses: Can deduct losses up to the amount of winnings (itemized deduction)
- Penalty for non-reporting: 20-75% penalty + interest + potential criminal charges
Koinly automatically tracks prediction market trades and generates IRS-compliant tax reports. Avoid audits and penalties.
Future Outlook: Will Polymarket Ever Be Legal in the US?
Possible Scenarios
Polymarket applies for and receives CFTC registration, becoming legal like Kalshi.
- Timeline: 2-5 years minimum
- Requirements: KYC/AML compliance, market surveillance, capital requirements
- Trade-off: Would lose decentralization and anonymity
Congress passes new law exempting prediction markets from CFTC jurisdiction.
- Timeline: Uncertain (depends on political climate)
- Precedent: 2024 "Safe Harbor for Prediction Markets Act" proposed but not passed
- Challenges: Gambling lobby opposition, regulatory concerns
Polymarket remains blocked in the US, operates internationally.
- Most likely outcome: Current situation persists indefinitely
- US alternatives: Kalshi continues to grow market share
- Impact: Two-tier market (US regulated vs international decentralized)
Conclusion: Should US Users Risk Using Polymarket?
We strongly advise against US residents using Polymarket, even with VPNs.
✓ Instead, use Kalshi:
- • 100% legal and CFTC-regulated
- • No risk of account freezes or legal issues
- • Tax reporting handled automatically
- • Growing market selection (200+ markets in 2026)
✓ Or invest in prediction market tokens:
- • Buy UMA and MATIC on Coinbase (legal)
- • Benefit from prediction market growth indirectly
- • No VPN or ToS violations needed
Bottom line: The risks of using Polymarket (account freezes, legal issues, tax complications) far outweigh any benefits. Stick to legal alternatives.
Frequently Asked Questions
Can I get in trouble for using Polymarket from the US?
While individual enforcement is rare, you risk: (1) Polymarket freezing your account/funds, (2) potential CFTC fines, (3) IRS penalties for unreported income. The risk isn't worth it when legal alternatives exist.
Is Kalshi as good as Polymarket?
Kalshi has fewer markets (200 vs 5,000+) but covers major events (elections, economics). For US-specific events like presidential elections, Kalshi often has better liquidity than Polymarket.
What VPN do people use for Polymarket?
We do not recommend using any VPN to access Polymarket from the US. This violates both ToS and potentially CFTC regulations. Use legal alternatives instead.
Will I go to jail for using Polymarket?
Extremely unlikely for individual retail traders. However, large-scale or commercial violations could face criminal prosecution. The bigger risk is civil penalties and fund seizures.
Can I use Polymarket if I travel outside the US?
Gray area. Polymarket's ToS prohibit "US persons" (citizens and residents), not just US locations. If you're a US citizen traveling abroad, you're technically still violating ToS even if physically outside the US.