South Korean Polymarket Ban Will Freeze Out Domestic Prediction Markets, Say Experts

South Korean regulators’ decision to ban Polymarket from operating in the country could spell the end for the domestic prediction market sector, industry insiders say.

Experts voiced their discontent after the Korea Communications Standards Commission ruled that Polymarket violates national gambling law, the South Korean media outlet News1 reported.

“[The government] needs to examine whether the regulator adequately reviewed the economic functions of prediction markets before classifying them as gambling industry operators,” said Kim Yu-gyeom, a researcher at the South Korean crypto analysis provider Four Pillars.

Major European nations such as Germany, France, Spain, the Netherlands, and the UK have already banned Polymarket.

Several US states have also attempted to use their gambling laws to police Polymarket and other prediction market players.

South Korean Polymarket Ban: East Asian Regulators Turn up Heat

In recent months, the regulatory heat has also intensified in East Asia.

Last month, the Japanese crypto exchange BitBank warned its users to stay away from “Polymarket and other prediction market platforms that offer betting services.”

BitBank told its users: “While these services may be operated by overseas companies, accessing them from Japanese territory and using them for the purpose of financial gain may constitute gambling.”

In June, South Korean regulators and lawmakers smarted after a single Polymarket trader won around $160,000 after successfully backing the underdog incumbent Oh Se-hoon to win the Seoul mayoral election.

The KCSC ruled that Polymarket operates in violation of South Korean laws on the facilitation of gambling activities.

The commission also said the prediction market operator’s sports-related markets violate the National Sports Promotion Act.

The act prohibits unauthorized online sports betting, carving out an exception for Sports Toto and Proto, government-run sports betting pools.

The ruling does not take into account recent “changes in overseas regulatory discussions,” said Four Pillars’ Kim.

Landmark Kalshi Lawsuit Changed Everything – Expert

Kim said that prediction market platforms like Kalshi have already demonstrated they serve an economic function in the US.

He mentioned Kalshi’s landmark lawsuit, filed against the Commodity Futures Trading Commission in 2023.

The lawsuit resulted in the District Court for the District of Columbia ruling in favor of Kalshi, holding that the CFTC had erroneously classified its election-related contracts as gambling.

“Weather and financial market-related prediction market contracts can be used to hedge factors that can pose risks to bona fide businesses,” said Kim.

He said that agricultural producers can use contracts to hedge against extreme weather or unexpected tariff regimes.

Unnamed experts told the same media outlet that the regulatory approaches of South Korea and the United States are now diverging on prediction markets.

Polymarket had tried to fight the KCSC’s ban, arguing that it had moved away from targeting South Korean users by suspending Korean language services and removing support for Korean won payments.

But the KCSC ruled that Polymarket “effectively provides a gambling environment,” due to the fact that it uses a “winner-takes-all,” chance-based “betting” model.

The regulator also said the firm essentially provides “betting on the outcomes of specific events, such as August rainfall patterns in Seoul.”

South Korean Crypto Exchanges Set to Lose Out

News1 said industry experts now expected domestic crypto exchanges and fintech companies to shy away from prediction market-related services.

This will come as a major blow to South Korea’s biggest crypto exchanges: Upbit and Bithumb.

While crypto winter has hit profitability at larger US crypto exchanges like Coinbase and Gemini, both have launched successful prediction market arms in recent months.

That door now looks to be closed for South Korean crypto giants, with transaction volumes and revenues plummeting at both Upbit and Bithumb in recent months.

In contrast, domestic experts said, United States regulators are making a concerted effort to incorporate prediction markets into the financial system.

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 South Korean regulators’ decision to ban Polymarket from operating in the country could spell the end for the domestic prediction market sector, industry insiders say. Experts voiced their discontent after the Korea Communications Standards Commission ruled that Polymarket violates national gambling law, the South Korean media outlet News1 reported. “[The government] needs to examine whether
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