How on-chain prediction markets work, from collateral to the CFTC

A sourced look at how on-chain prediction markets hold money, match trades & settle outcomes, using Polymarket & Myriad as examples, & what a 2022 US regulatory order said about them.

What ‘on-chain’ means

A prediction market lets people trade contracts on whether a future event will happen. ‘On-chain’ means the core records & rules of that market live on a blockchain, a shared public ledger, rather than only in a company’s private database.

The US Commodity Futures Trading Commission (CFTC) described Polymarket in a January 2022 order as “deploying smart contracts hosted on a blockchain to operate the markets”. A smart contract is a programme stored on a blockchain that runs automatically when set conditions are met.

The contracts themselves are usually framed as questions with a yes-or-no answer. The CFTC listed examples Polymarket had offered, including “Will $ETH (Ethereum) be above $2,500 on July 22?” & “Will Trump win the 2020 presidential election?”

The money backing these trades is usually a stablecoin, a crypto token designed to hold a steady value against a currency such as the US dollar. Polymarket runs on Polygon, a blockchain network, while Myriad has launched on two networks, Abstract & Linea.

Being on-chain does not mean that no company is involved. According to the CFTC, Polymarket “creates, defines, hosts, & resolves” the contracts on its website, so key decisions still sat with the operator.

Collateral & order books

Collateral is the money locked up to back a position, so that winners can be paid. The CFTC’s order says each Polymarket event market contract “is composed of a pair of binary options”. A binary option is a contract that pays a fixed amount or nothing, depending on whether a stated event happens.

Unchained reports that Polymarket introduced a native stablecoin, Polymarket USD, which it describes as a collateral token backed 1:1 by Circle’s USDC. It replaces USDC.e, the bridged version of USDC previously used on Polygon. A bridged token is a version of a token that has been moved onto one blockchain from another.

According to Unchained, moving away from a bridged asset gives Polymarket more flexibility, including the potential to generate yield on collateral deposits & to build revenue channels beyond trading fees.

An order book is the list of buy & sell orders at stated prices, which the platform matches against each other. Unchained says Polymarket paired a redesigned order book with upgraded smart contracts, promising faster execution, tighter spreads & lower operational overhead. The spread is the gap between the best price a buyer will pay & the best price a seller will accept.

The rebuilt system also supports EIP-1271 signatures, which Unchained says lets smart contract wallets interact natively with the platform for the first time.

The switch had practical effects for traders. Unchained reports that all existing order books would be cleared during the transition, with traders given at least a few days’ notice before open orders were cancelled.

For most users the website was expected to handle token conversion automatically, while people running automated trading bots would need to update their software development kits to work with the new order book structure.

Polymarket also confirmed plans for a native governance token called POLY, according to Unchained, though no launch date had been set.

Myriad (Abstract & Linea)

A disclosure first: Myriad is owned by DASTAN, which is also the parent company of the news site Decrypt. Two of the three sources used here for Myriad’s history are a Decrypt article & a Decrypt newsletter, so they come from a company that shares Myriad’s owner.

Decrypt reported that Myriad launched on mainnet on Abstract, a blockchain network, in January. Decrypt also reported that, before its USDC markets launched, the platform had used an on-chain points system with no monetary value.

Decrypt reported that Myriad had launched USDC markets on its platform, & its article embeds a 6 March 2025 post from Myriad’s account inviting users to use their USDC on Abstract. Decrypt described USDC as Circle’s regulated stablecoin, which can be redeemed 1:1 for US dollars.

DASTAN co-founder & president Farokh Sarmad told Decrypt that “points are fun, but you could argue that points are not enough”. He said Myriad would make money by taking “a percentage on the volume” traded.

Decrypt reported that since its mainnet launch, over 430,000 new users had signed up via Abstract Wallet & made more than 1.7 million predictions. Those figures were reported at the time of the March 2025 USDC launch.

Decrypt’s Dispatch newsletter later reported that Myriad had launched on Linea, which it describes as an Ethereum layer-2 network. A layer-2 network is a separate blockchain that runs on top of Ethereum & relies on it for security. The newsletter says users can take part “using USDC & points”.

According to the newsletter, DASTAN chief executive Loxley Fernandes said Myriad’s aim is to make predictions a “new class of DeFi products”. The same newsletter carries an unattributed ‘Quote of the Day’ describing the goal as looking at “prediction contracts much in the way that ERC-20s exist”. ERC-20 is the common standard for tokens on Ethereum, & DeFi, or decentralised finance, refers to financial services run through smart contracts.

Myriad’s homepage lists market categories including crypto, sports, politics, economy, gaming & culture. It also advertises “5-Minute Markets” for short-term crypto prices “with instant resolutions”, & a browser extension that lets users “predict directly on socials, & earn points”.

Oracles & resolution risk

Resolution is the step where a market decides which answer was correct & pays out. An oracle is a service that brings real-world information, such as an election result or a price, onto a blockchain so a smart contract can use it to settle.

The sources for this guide do not explain how the oracles used by any of the platforms covered here work, how disputes are handled, or who can vote on outcomes.

What they do show is that resolution is not always automatic. In its 2022 order, the CFTC said Polymarket itself resolved the contracts on its website. Myriad’s homepage advertises “instant resolutions” for its 5-minute crypto markets, without the page explaining the mechanism.

The practical question for any market is who or what decides the outcome, & what happens if that answer is challenged. A market’s written rules are where that is usually set out.

Are they legal for US users?

The clearest US authority in the sources is a CFTC order dated 3 January 2022. The CFTC filed & simultaneously settled charges against Blockratize, Inc., trading as Polymarket, a Delaware-registered company based in New York City.

The charges were for offering off-exchange event-based binary options & for failing to obtain designation as a designated contract market (DCM) or registration as a swap execution facility (SEF). A SEF is a regulated platform for trading swaps.

The order found that from approximately June 2020 Polymarket had been operating an illegal unregistered or non-designated facility, & that it had offered more than 900 separate event markets. The CFTC said these event market contracts are swaps under its jurisdiction & can only be offered on a registered exchange.

Polymarket was ordered to pay a $1.4 million civil monetary penalty, to wind down all markets on Polymarket.com that did not comply with the Commodity Exchange Act & CFTC regulations, & to cease & desist from violating them. The CFTC said the penalty was reduced in recognition of Polymarket’s substantial cooperation.

“All derivatives markets must operate within the bounds of the law regardless of the technology used, & particularly including those in the so-called decentralized finance or ‘DeFi’ space,” said Vincent McGonagle, the CFTC’s acting director of enforcement at the time.

In the same release the CFTC said there are registered binary options exchanges in the US & “strongly urges the public to verify a company’s registration with the CFTC before committing funds”. It says a company’s registration status can be found using NFA BASIC.

This order describes the US position as the CFTC set it out on 3 January 2022 for one operator. The sources do not say how Myriad or other on-chain platforms treat US users today, or what their terms of use allow.

Risk checklist

Collateral: positions are only as sound as the token backing them. Polymarket USD is described as backed 1:1 by USDC, & Myriad’s money markets use USDC, so both depend on that stablecoin holding its value.

Platform changes: Unchained reported that Polymarket’s switch to a new order book meant existing order books would be cleared & open orders cancelled after notice, & that bot operators would need to update their software.

Resolution: as the CFTC order shows, an operator may define & resolve the markets it hosts, so it matters who decides outcomes & how disagreements are settled.

Registration: the CFTC’s 2022 order found Polymarket’s event markets were swaps that needed a registered venue, & the CFTC points the public to NFA BASIC to check a company’s status.

Points or money: Myriad has run both points markets with no monetary value & USDC markets, & its homepage still promotes earning points, so it matters which kind a market is.

Tokens & ownership: Polymarket has confirmed a planned POLY governance token with no launch date, & Myriad shares an owner with the news site Decrypt.

Questions

What is the collateral in an on-chain prediction market?

It is usually a stablecoin locked up to back positions. Unchained reports that Polymarket’s collateral token, Polymarket USD, is backed 1:1 by Circle’s USDC & replaces the bridged USDC.e on Polygon, while Myriad offers USDC markets.

Who owns Myriad?

Myriad is owned by DASTAN, which is also the parent company of Decrypt & Rug Radio, according to Decrypt. It launched on Abstract & later on Linea, an Ethereum layer-2 network.

Why did the CFTC fine Polymarket?

On 3 January 2022 the CFTC said Polymarket offered off-exchange event-based binary options without being a designated contract market or registered swap execution facility. It ordered a $1.4 million penalty & the wind-down of non-compliant markets.

How can someone check whether a US exchange is registered with the CFTC?

The CFTC says a company’s registration status can be found using NFA BASIC. It urges the public to verify registration before committing funds.

Are Myriad’s points worth money?

Decrypt reported that Myriad’s original on-chain points system had no monetary value, & that Myriad then launched USDC markets, letting users make predictions with Circle’s USDC stablecoin for the first time.

Sources

• unchainedcrypto.com
• docs.predict.fun
• decrypt.co
• decrypt-dispatch.beehiiv.com
• myriad.markets
• cftc.gov

Sources checked 9 October 2026. Information only. 18+.