Polymarket's Trading Volume Inflated by Artificial Activity, Research Reveals
A groundbreaking study from Columbia University has uncovered significant artificial trading activity on Polymarket, one of the world's most popular prediction markets. Researchers found that approximately 25% of all buying and selling activity on the platform over the past three years consisted of wash trading, where users rapidly buy and sell the same contracts to create false volume.
Identifying Suspicious Trading Patterns
The research team, which included professors from Columbia Business School and Barnard College, analyzed trading data visible on the Polygon blockchain ledger. They developed sophisticated algorithms that flagged 14% of Polymarket's 1.26 million wallets as engaging in activity consistent with wash trading. These wallets frequently transacted with each other but seldom interacted with other market participants.
Professor Yash Kanoria, one of the study's four co-authors, emphasized that "wash trading doesn't add liquidity or information to the market" and expressed hope that Polymarket would welcome their analysis. The paper was posted on the open-access research platform SSRN on Thursday, though it has not yet undergone peer review.
Implications for Prediction Market Credibility
The findings arrive at a critical moment for prediction markets, as investors and market participants closely monitor the rising trading activity on Polymarket and its competitors. These platforms allow users to bet on outcomes ranging from sports events to political elections, with advocates promoting them as efficient, crowd-sourced barometers of truth.
However, the Columbia study suggests that if a substantial portion of trading volume is "fictitious," it could alter the understanding of Polymarket's relative strength within the industry. More importantly, it undermines the fundamental premise that prediction markets reflect the "wisdom of a larger crowd."
The researchers clarified that they found no evidence suggesting Polymarket itself was responsible for the wash trading. Instead, they pointed to elements of the exchange's crypto-based structure that potentially enable such activity. A representative for Polymarket stated the company was reviewing the study and had no immediate comment.
This research coincides with significant developments in the prediction market space, including Polymarket's recent announcement of a potential $2 billion investment from Intercontinental Exchange Inc., the owner of the New York Stock Exchange. As these markets continue to grow and attract substantial investment, the question of authentic versus artificial volume becomes increasingly crucial for market integrity and investor confidence.
