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It's not being regulated as a casino (which would limit what the casino could do). It is being regulated, to a limited extent, like a commodity market (which does limit what the participants can do).

If 0.01% of people engaging in insider trading are caught and prosecuted, it is effectively unregulated.

I believe Polymarket wants it to fall under the regulations of cftc as it is implemented like an option/event contract. And cftc says that they don't care about which technology is used. But as far as I now this is the first case it will be tested for real and the views of cftc and a judge may not be the same. I fail to see how it can be classified as insider trading. But, it is till fraud so I'm not sure how much it matters in the end.

How is it fraud? Wouldnt it just be a tos violation?

In my view, anyone participating in these markets does so knowing that the outcomes are within the control of other participants. I can't think of any other reason individual account activity is public.

US have wire fraud laws which I believe includes this. But it will be an interesting case to follow. Personally I don't see anything that should be a crime here at all.