Study Finds Around a Quarter of Polymarket Trades Are Fake
A recent study by Columbia University researchers revealed that nearly 25% of trades on the predictions market Polymarket are artificial. The platform allows users to trade contracts based on the likelihood of real-world event outcomes.
The researchers analyzed three years of buying and selling activity and discovered a significant portion involved "wash trades." These occur when a single person or entity simultaneously buys and sells the same contract to create false trading volume, potentially manipulating market perceptions.
While the study does not accuse Polymarket of intentionally facilitating such manipulation, it notes that the use of a cryptocurrency stablecoin as the medium of exchange may simplify executing these trades.
“About 25% of those contracts were ‘wash trades,’ which happens when a person or entity buys and sells the same contract to create fake levels of trading volume that can manipulate the market.”
The researchers also developed an algorithm to detect accounts mainly trading with a small group of other accounts, frequently exchanging contracts among themselves, highlighting suspicious trading patterns.
Key Findings
- Approximately one quarter of Polymarket’s trading volume is artificial.
- Wash trading is used to inflate apparent market activity.
- Stablecoin use might facilitate easier trade manipulation.
- Algorithmic detection identified tightly linked suspicious accounts.
Author's summary: A Columbia University study uncovers that around 25% of Polymarket trades are fake wash trades, suggesting stablecoin use might enable these manipulative activities without implicating the platform itself.