Author: Chloe, ChainCatcher
Polymarket officially announced the updated (market integrity rules) on March 23, which apply simultaneously to its DeFi platform and the US exchange under CFTC regulation. The new rules explicitly prohibit three types of insider trading behaviors and strengthen the framework for combating market manipulation. This policy adjustment did not come out of nowhere, but is the result of a series of controversies and public pressure, as well as Polymarket's self-rescue actions in response to the impact of mainstream US financial regulation.
However, the new regulations affect not only the true insider players, but do they pose a more direct threat to the interests of the large毛用户? Or to the professional arbitrageurs who truly provide liquidity?
The pressure history behind the rule upgrade: from the Venezuelan coup to the Iran war.
Looking back at the public opinion and regulatory pressure that Polymarket has endured over the past few months. In early January 2026, an anonymous user spent $32,537 on Polymarket, betting that 'Maduro will step down before January 31'. As Trump announced at 4:21 AM on Truth Social that Maduro had been arrested, the user immediately received a return of up to $436,000, with an investment return rate exceeding 13 times.
Investigations found that the account was established in December 2025, and all betting targets accurately pointed to the Venezuelan political situation, with the betting timing just hours before the event broke out. In this regard, Better Markets co-founder Dennis Kelleher pointed out that this transaction exhibits all the characteristics of insider trading: newly created account, large funds, precise prediction of timing, and all occurring in an unregulated, opaque market.
Coincidentally, around the same time, suspicious trades targeting 'the timing of US military action against Iran' appeared on Polymarket, with some accounts precisely building positions just before US military strikes, profiting hundreds of thousands of dollars.
Notably, Polymarket CEO Shayne Coplan once said something thought-provoking in an interview with CBS News: 'It is a good thing that insiders have an advantage in the market.'
However, the reality is that in March 2026, Senators Adam Schiff and John Curtis jointly proposed bipartisan legislation to ban trading contracts on prediction markets that are 'similar to sports betting or casino games'. The Commodity Futures Trading Commission (CFTC) also issued guidelines that month requiring prediction market platforms to implement specific measures to prevent insider trading and encouraging exchanges to actively consult with regulatory agencies to identify 'manipulation or price distortion risks' when designing event contracts.
The regulatory hunt has already formed, and Polymarket's policy upgrade is an active response to this hunt.
Dissection of the new regulations: three types of bans and a multi-layered monitoring framework.
Polymarket officially released updated market integrity rules on March 23, 2026, clearly delineating three red lines: first, trades based on stolen confidential information; second, trades based on illegal sources of information; third, trades involving influential figures on outcomes.
In terms of market manipulation, the rules further explicitly prohibit spoofing, wash trading, fictitious transactions, and other behaviors. In response to these bans, the ChainX community stated in an interview with ChainCatcher that the boundary between 'wash trading' and normal trading lies in whether real value is generated and whether trading costs are borne. Wash trading is when the same group of people trades back and forth purely for data; whereas normal arbitrage or market-making involves placing limit orders at different price points and bearing holding risks, with each transaction actually occurring with real market users and standing up to scrutiny.
In terms of execution architecture, Polymarket adopts a 'multi-layer monitoring' design. On the DeFi platform side, all transactions are recorded on the Polygon chain, which anyone can publicly access, and the platform collaborates with world-class monitoring technology professionals for on-chain anomaly detection; once suspicious behavior is detected, sanctions that can be taken include banning wallet addresses and referring users to law enforcement.
On the Polymarket US (CFTC regulated exchange) side, monitoring is divided into three layers: external monitoring technical partners, real-time monitoring stations, and regulatory service agreements signed with the National Futures Association (NFA), the latter of which can directly conduct investigations and sanction violators, with sanctions including suspension of qualifications, termination of accounts, monetary fines, or referral to regulatory authorities.
What are the interests of the毛用户 and the dilemmas of related studios?
Polymarket's move is a significant blow to 'insider players', but different sparks may emerge for the毛用户 community and related studios. In the face of new regulations, the reactions of major market players are thought-provoking; currently, the ChainX community, which has seen a historical trading volume exceeding $200 million on Polymarket, stated in an interview with ChainCatcher that the introduction of new regulations was expected and even long awaited. They believe this is not a crackdown, but a sign of the market maturing. Even before the platform began charging fees, the professional team had anticipated that the future would involve charging the entire market and strengthening regulation.
For ordinary wash trading airdrop users, relying on creating massive on-chain records and engaging in 'wash selling' behavior through dual accounts in a single market now runs into the new regulations’ guns. Some players have even evolved to manipulate a matrix of 100 wallets or hedge between Polymarket and Kalshi, but the upgrade of the monitoring system has greatly increased the risks of such behavior.
The ChainX community believes that truly high-quality strategies should not be 'wash trading', but rather real arbitrage. Arbitrage itself is the process of discovering price discrepancies and correcting market inefficiencies, which is the healthy behavior that prediction markets need. As gray operations are squeezed out, the market will become cleaner, and professional arbitrageurs' profits may actually be higher.
The contradiction of liquidity: Are wash trading users parasites or infrastructure?
Additionally, behind this wave of regulations lies a contradiction that Polymarket cannot evade: Polymarket's liquidity is not naturally formed. According to on-chain data, 80% of users on the platform place single bets of less than $500, with the average single bet amount in the past month being around $100, therefore the true support for market depth comes from a very small number of large traders and liquidity providers.
It is worth discussing whether among the airdrop farmers, those who adopt 'legal strategies' (such as providing two-way liquidity, cross-platform arbitrage) objectively play the role of informal market makers?
They have narrowed the buy-sell spread and enhanced market capacity, allowing ordinary users to build positions at more reasonable prices. On the other hand, from a business logic perspective, after Polymarket returned to the US market, it urgently needed a massive amount of real transactions and deep data to prove the effectiveness of its market to the CFTC (Commodity Futures Trading Commission), which is crucial for obtaining further regulatory approval.
If the new regulations are too aggressive and scare away this group of毛用户, a liquidity drought in the short term is almost inevitable, especially in niche long-tail markets, where these farmers often represent the only source of opposing positions.
In response, the ChainX community stated that the platform should recognize the contributions of users who provide real liquidity. Taking a multi-account system as an example, if millions of dollars in trading volume are contributed daily, and all are maker limit orders, this is precisely what the platform mechanism encourages. Especially in events with low volatility and poor liquidity, these limit orders can add depth to the market and allow ordinary users to execute trades. This behavior essentially exchanges capital and time for rebates while serving the market.
Under regulatory compliance, do related studios also need to undergo strategic transformation?
It can be said that Polymarket's compliance process is not a temporary market fluctuation, but a signal of the platform's strategic shift.
From acquiring the licensed exchange QCX to signing agreements with the NFA, all of this shows that prediction markets are moving closer to traditional financial regulation. In this highly transparent and regulated path, the survival space for traditional 'low-quality wash trading' will only become narrower. The ChainX community believes that the new regulations are beneficial to professional teams; in the future, they will adopt three strategies: first, increase liquidity provision to strive for more maker rebates; second, actively discuss deeper market-making solutions with the platform; third, continuously optimize strategies to improve profits under compliance.
Overall, for studios that view Polymarket as a core profit source, now is a critical juncture for shifting strategic focus from 'quantity' to 'quality'. Instead of manipulating 100 wallets for low-quality wash trading, which carries the risk of being precisely identified and collectively banned by monitoring systems, it is better to abandon the multi-wallet matrix and instead operate a few high-quality accounts. Through real market research for deep trading or focusing on liquidity provision within platform regulations, one can effectively avoid the risk of bans and may even receive a better token airdrop allocation due to contributing real value in the final airdrop weight calculation.