Polymarket's Trading Volume Artificially Inflated by 25%
Researchers at Columbia University revealed that up to 25% of all trading volume on Polymarket, a leading blockchain-based prediction market, may be artificially inflated through wash trading.
Key Findings from the Columbia Study
- The proportion of wash trading surged to 60% in December 2024.
- Sports markets on the platform exhibited about 45% artificial trading activity.
- The cause is linked to Polymarket’s fee-free trading model and use of pseudonymous wallets, which facilitates linked accounts manipulating trade volumes.
Research Methodology
Led by Yash Kanoria of Columbia Business School and Rajiv Sethi from Barnard College, the study applied network analysis techniques to identify suspicious trading patterns. Wallets frequently transacting with each other but rarely engaging with external accounts were flagged as part of coordinated volume inflation.
Polymarket's reported trading volumes have been distorted by repeated transactions between related accounts.
Implications for Prediction Markets
The high rate of wash trading raises concerns about the reliability of prediction markets as indicators of public sentiment and market expectations.
Regulatory Considerations
As Polymarket contemplates re-entry under CFTC regulation, scrutiny intensifies due to these findings and claims that nearly half of its trading may be artificial.
Author's summary: Columbia University research uncovers that wash trading inflates Polymarket's volume by around 25%, challenging the trustworthiness of its prediction markets and raising regulatory concerns.