Will Regulatory Crackdowns Rechannel $34 Billion in Offshore Prediction Market Liquidity?

Executive summary

According to a study commissioned by the Coalition for Prediction Markets—an industry group including regulated operators Kalshi, Crypto.com, and Coinbase—U.S. citizens traded between $11 billion and $34 billion on offshore prediction markets during a 12-month period ending in April 2026. The study, authored by Rutgers professor and CFTC Innovation Advisory Committee member Harry Crane, highlights that despite official bans on U.S. users, offshore platforms continue to attract substantial American capital. Polymarket, the largest offshore prediction market, reportedly saw between $10.6 billion and $26.7 billion of its $55.6 billion trailing 12-month trading volume originate from U.S. users, representing up to 30% of its total activity.

The immediate implication is an intensified push by regulated domestic competitors and the Commodity Futures Trading Commission (CFTC) to curb offshore access. While Polymarket has slowly rolled out its regulated "Polymarket U.S." platform, which has generated approximately $5 billion in notional trading volume to date, the vast majority of U.S. capital remains on unregulated platforms. This discrepancy has drawn sharp criticism from domestic operators who argue that offshore platforms bypass essential anti-money laundering (AML) controls, customer verification, and market integrity standards.

Why it matters

From a market-structure and capital-flow perspective, the study exposes the sheer scale of capital currently operating outside the U.S. regulatory perimeter. Polymarket's operations primarily rely on stablecoins (specifically USDC) settled on the Polygon network. Consequently, a significant portion of this $34 billion in offshore trading volume directly drives transaction fees, active addresses, and liquidity depth within the Polygon and broader Ethereum Layer-2 ecosystems. If regulatory enforcement successfully blocks U.S. users via stricter VPN detection or smart-contract-level geoblocking, we could see a noticeable contraction in on-chain transaction volume and stablecoin velocity on these networks.

Conversely, the primary beneficiaries of an aggressive regulatory crackdown would be domestic, fiat-integrated platforms like Kalshi or fully compliant crypto-native alternatives. However, these regulated platforms operate under strict CFTC constraints, which currently limit the types of contracts they can offer. The CFTC's proposed rules to ban contracts on controversial topics like war or political assassinations could stifle the very speculative appeal that drives offshore volumes. Therefore, a forced migration of liquidity from offshore to regulated domestic platforms is unlikely to be a 1:1 transfer; instead, a significant portion of this speculative liquidity may simply exit the prediction market sector entirely, reducing overall crypto-market liquidity.

Furthermore, the political battle over jurisdiction—highlighted by CFTC Chairman Mike Selig's aggressive stance and Senator Elizabeth Warren's scrutiny of the regulator's resources—suggests that prediction markets will remain a primary battleground for crypto regulation. The outcome will set a critical precedent for how the U.S. governs decentralized protocols that serve U.S. users through offshore entities.