You know, sometimes the crypto market feels like a bustling bazaar. Lots of noise, lots of activity. But what if a good chunk of that buzz isn’t quite real? A new study from Columbia University suggests exactly that for Polymarket, one of the bigger names in prediction markets.
- A Columbia University study indicates that nearly a quarter of Polymarket’s historical trading volume may be attributed to wash trading, a practice designed to inflate market activity. This manipulation was particularly prevalent in sports and election markets.
- Researchers developed an algorithm to detect these patterns by analyzing wallet behavior, identifying coordinated networks of accounts engaged in rapid, often unprofitable, trading. The primary motivation appears to be gaming future incentives like token airdrops rather than direct profit.
- Polymarket’s lack of identity verification and trading fees, coupled with potential future token incentives, may contribute to its vulnerability to such manipulation, raising questions about the genuine market signals users receive.
They looked at over two years of data. Their finding? Nearly a quarter of Polymarket’s historical trading volume might be, well, a bit of a mirage. We’re talking about wash trading here, a practice that’s illegal in traditional finance and generally frowned upon in our corner of the financial world.
Think of wash trading like this: you buy a widget from yourself, then sell it back. Or you get a friend to do it. The price doesn’t really change, and you don’t gain or lose much. But suddenly, the ‘volume’ of widgets traded looks much higher. It makes the market seem more active than it truly is.
The Columbia researchers dug deep. They estimate that close to 25% of all trades on Polymarket involved users doing just that. They were rapidly buying and selling contracts, often with their own other accounts or with accounts they were secretly working with. The goal wasn’t profit, but to pump up the numbers.
This wasn’t just a small blip. The study points to December 2024, when fake trades hit a staggering 60% of weekly volume. This issue has continued, right up through October 2025. More than half the action in some weeks simply wasn’t genuine.
Sports and election markets seemed to be the prime targets. In some weeks, over 90% of trades in those categories looked inauthentic. It makes you wonder what kind of signal users were actually getting from the market, doesn’t it?
How did they spot this? The Columbia team developed a clever algorithm. It watches wallet behavior. They focused on how often users opened and then quickly closed positions. Especially when those users were trading mostly with other wallets showing the same rapid-fire patterns.
This wasn’t about catching simple back-and-forth trades. Their method allowed them to map out complex networks of wallets. We’re talking about trading loops and clusters, some involving tens of thousands of accounts. It’s like a digital dance, but nobody’s really moving anywhere.
One cluster, for example, had over 43,000 wallets. It was responsible for nearly $1 million in trading volume. Most of these trades were for prices under a penny. Almost all of it was flagged as likely wash trading. That’s a lot of effort for very little actual market movement.
Some traders even tried to make it look more legitimate. They’d pass contracts through dozens of wallets in quick succession. Sometimes, they even held losing positions. It was all part of the show, designed to give the appearance of real market activity.
The study also found users reusing capital. They’d transfer USDC (a stablecoin, basically a digital dollar) across multiple wallets. This suggests a coordinated effort, not just a few isolated actors. It paints a picture of deliberate, organized activity.
So, if they weren’t making money, why bother? The paper suggests the goal wasn’t financial return. Instead, it was about gaming future incentives. Think token airdrops (free tokens given to active users) or platform rankings. It’s like trying to win a popularity contest by stuffing the ballot box.
Polymarket itself has a few features that might make it particularly vulnerable. It doesn’t require identity verification. And it charges no trading fees. These are features that the researchers argue make it easier for wash traders to operate without consequence.
There’s also been talk about a potential future token from Polymarket. This speculation could be a strong incentive for volume manipulation. If you think being an ‘active’ user might get you free tokens later, you might be tempted to look more active than you are.
This isn’t the first time Polymarket has faced such accusations. There have been whispers of manipulation before, especially around politically sensitive markets. The U.S. presidential election, for example, drew some scrutiny.
But not everyone agrees with this narrative. Harry Crane, a statistics professor at Rutgers, has voiced a different opinion. He believes concerns about manipulation might be overblown. He even suggested they could be politically motivated.
Professor Crane told CoinDesk last year, “I believe the narrative about manipulation is an attempt by legacy media to discredit these markets, which threatens their ability to control the narrative.” It’s a strong claim, suggesting a battle for control over information.
Still, the Columbia team stands by its findings. They argue that inflated volume can seriously distort how users perceive market sentiment. If you see a lot of activity, you might think a certain outcome is more likely, even if that activity isn’t real.
They propose a solution: use network-based algorithms, much like their own, to flag suspicious trading patterns. The idea is to restore trust in these emerging financial tools. Because without trust, what do we really have?
Polymarket, for its part, didn’t respond to a request for comment by press time. The company is currently in the middle of a formal return to the U.S. They had previously settled charges with U.S. regulators, so this return is a big step for them.
As part of this process, the company plans to issue a token. Its chief marketing officer confirmed this last month, saying there would be an airdrop after the U.S. relaunch. This news, of course, adds another layer to the wash trading incentive discussion.
At the same time, Polymarket is reportedly looking to raise funds. We’re talking about a valuation of up to $15 billion. That’s a hefty sum, and it makes the integrity of their reported trading volume even more critical.
So, what does this all mean for you, the curious reader? It’s a reminder that in the wild west of crypto, not everything is always as it seems. Sometimes, the numbers tell a story, but you need to know how to read between the lines.
The quest for genuine market signals continues. And studies like Columbia’s help us get a little closer to understanding the true pulse of these fascinating, sometimes perplexing, prediction markets.
