Prediction market Polymarket has skyrocketed into mainstream consciousness during the 2024 US elections, with the platform reporting that users have placed $2.7 billion in bets on whether Donald Trump or Kamala Harris will be elected president early November.
But analysts at two crypto research firms found evidence of rampant trading on Polymarket, even though its chances were widely shared on social media and mainstream media. Donald Trump currently has a 67% chance of winning, according to the platform.
In separate surveys conducted by blockchain companies Chaos Labs and Inca Digital and shared exclusively with Fortune, Analysts found that Polymarket’s activity showed signs of wash trading, a form of market manipulation in which stocks are bought and sold, often simultaneously and repeatedly, to create a false impression of volume and activity. . Chaos Labs found that fictitious trades accounted for about a third of the trading volume on Polymarket’s Presidential Marketplace, while Inca Digital found that a “significant portion of the volume” in the market could be attributed to possible trades. fictitious, according to his report.
While other prediction markets, including Kalshi and Robinhood, have launched in the United States since a crucial court ruling in September legalized election betting, Polymarket remains by far the largest platform, thanks in part to its crypto-native design and its offshore operations. Polymarket remains inaccessible to American investors. Yet with less than a week until Election Day, suspicious activity on Polymarket raises questions about the accuracy of the site, which founder Shayne Coplan, 26, says can “demystify real-world events that matter more “. for you.”
“Polymarket’s terms of service expressly prohibit market manipulation,” a Polymarket spokesperson said in a statement shared with Fortune after publication. “We strive to provide users with the fairest analysis possible and our transparency allows the market to decide.”
The rise of prediction markets
Founded in 2020 and backed by venture capital funds, including Peter Thiel’s Founders Fund, Polymarket attempted to launch election betting in the United States before being forced to relocate by the Commodity Futures Trading Commission in early 2022.
Unlike competitors such as PredictIt and Kalshi, which recently won a lawsuit against the CFTC to operate in the United States, Polymarket operates its platform on the Ethereum-based Polygon blockchain. Coplan says the crypto element provides greater visibility into its business activity. “The beauty of Polymarket is that everything is peer-to-peer and transparent,” he recently posted on X.
Polymarket’s volume exploded during the recent presidential election, with outlets from Wall Street Journal has Fortune reporting betting odds on its platform alongside more traditional metrics such as poll data. In a sign of increased credibility around prediction markets, polling star Nate Silver joined Polymarket as an advisor in July.
Polymarket’s cryptographic design and offshore operations have attracted attention from other quarters. This includes recent reports claiming that there are manipulative transactions on the site, including by a single French trader who allegedly caused Trump’s chances to skyrocket. Polymarket insisted the user had “extensive trading experience” and was not acting nefariously.
Washing business
Evidence of wash trading appears to be a serious sign of bad behavior on the platform. To conduct its analysis, Chaos Labs examined on-chain data to isolate high-volume traders, filtering out users likely to be engaged in normal activities such as market making. It then separated users showing signs of fictitious trading, looking at their ratio of buy and sell orders and considering their stock holdings relative to their trading volume. Chaos Labs concluded that approximately one-third of the trading volume (and overall users) in the Presidential Market alone was likely wash trading, as well as across all markets.
This practice is common across all crypto applications, and especially those with potential for future token launches and airdrops, with users often earning tokens based on their activity. The Information reported in September that Polymarket had considered launching its own proprietary token.
“The challenges of prediction markets are not unlike those of any other application that has a market,” said Omer Goldberg, founder of Chaos Labs, which is backed by Haun Ventures and develops data integrity software. “Wash trading is not specific to Polymarket.”
Trading volume
Chaos Labs and Inca Digital discovered another anomaly on Polymarket: the purported trading volume on its Presidential Market, reported in US dollars on Polymarket’s website, does not match the on-chain data. Inca estimated that the actual trading volume in the presidential betting market was around $1.75 billion, compared to the $2.7 billion reported by Polymarket.
Chaos Labs attributed this to Polymarket mistaking the stocks traded for the US dollar. To be clearer, users can buy shares of candidates at different odds. A Hillary Clinton “yes” share for president costs just $0.01, given the great unlikelihood of her being elected, but Chaos Labs found that Polymarket reports this share at $1 in volume.
This discrepancy, along with the fictitious trades, underscores the untested nature of a platform that many are relying on for signals regarding the presidential election.
However, Polymarket’s decision to operate on blockchain rails also means that researchers such as Chaos Labs and Inca Digital can analyze the activity. Coplan described users’ ability to audit Polymarket as a “feature and not a bug.”
“These companies want to attract real users and build trust in their markets,” Goldberg said. “Identifying and reducing fictitious trades is essential to ensure that prediction markets are representative of everyone, with prices and market volumes determined by an authentic and sustainable user base rather than being scrambled by inorganic flows.”
