European regulators are scrutinizing prediction markets Polymarket and Kalshi for operating without proper authorization. The European Securities and Markets Authority (ESMA) warned that these platforms offer event contracts to EU retail investors without a MiFID II license, raising investor-protection concerns. Both platforms still allow access from some EU countries despite weak geo-blocking. Polymarket, a decentralized platform on Polygon, handled over $3.2 billion in volume during the 2024 U.S. election cycle. ESMA’s intervention signals growing regulatory pressure on blockchain-based forecasting, with possible enforcement actions including cease-and-desist orders and stricter KYC requirements.
European regulators have clearly demarcated the territory of prediction markets by scrutinizing two large platforms very closely. The European Securities and Markets Authority (ESMA) stated that Polymarket and Kalshi do not have the necessary authorization for selling and marketing event contracts in the EU.
ESMA highlighted that the platforms were offering event contracts to EU retail investors without either a MiFID II investment firm license or equivalent authorization. When contracts can be traded through binary options or derivatives they are considered financial instruments.
The regulator said both platforms are still allowing some EU countries’ traders to use their services but not all. ESMA cast doubt on whether IP-based blocks and VPN controls have been effective.
Polymarket operates through decentralized conditional token contracts and is built on Polygon with settlement in USDC, whereas Kalshi, regulated by the U.S. Commodity Futures Trading Commission (CFTC), is a designated contract market. Dune Analytics data showed that Polymarket handled more than $3.2 billion in volume during the 2024 U.S. election cycle.
The warning covers different stakeholders. For EU investors, it means that access might be limited, and it raises concerns about leverage, settlement finality, and protection.
For exchanges and brokers, it reiterates that providing event contracts in the EU without permission will lead to enforcement by MiFID II and the Market Abuse Regulation. For developers and ecosystems, particularly those in Polygon, it is a regulatory issue showing what can occur for frontend and oracle risk.
This type of situation might mean similar scrutiny of protocols such as Azuro and Drift. ESMA’s position coincides with the worldwide crackdown on event contracts.
In the U.S., the CFTC is still debating whether certain political contracts should be classified as wagering. Meanwhile, growth in Kalshi has made it harder to distinguish between derivatives and betting.
Possible next moves might involve issuing investor warnings, imposing cease-and-desist orders, and enforcing robust geoblocking linked to KYC processes. Platforms planning to access the EU market must either be an authorized EU investment company or be MiFID II compliant, and also comply with MiCA if stablecoins are used for settlement.
This case will mainly determine the possibility of effective restriction with decentralized access and the fragmentation of the predictive market into regulated and unregulated zones.
