Approximately 25% of Polymarket trades are "wash trades," where the same contract is bought and sold to create fake trading volume.
Researchers flagged nearly 15% of wallets (1.26 million) on the platform as participating in these artificial transactions.
At its peak in December 2024, an estimated 60% of Polymarket's trading volume was attributable to phony orders.
The use of cryptocurrency stablecoins may facilitate these types of transactions.
Why this matters: This level of artificial trading can distort the perceived interest in events and mislead traders, impacting the integrity of the platform.
Polymarket allows users to trade "contracts" based on the probability of real-world events. The study analyzed three years of trading activity and identified "wash trades" as a significant issue. These trades involve buying and selling the same contract to create artificial volume. Researchers developed an algorithm to identify accounts engaging in these practices, revealing networks of traders seemingly involved in wash trades.
While the study does not accuse Polymarket of directly participating in these manipulations, it suggests that the platform's use of cryptocurrency could make such activities easier to execute. Polymarket has also been observed using social media to generate trading volume, which, while not necessarily manipulative, is aggressive.
Q: What are wash trades?
Wash trades involve buying and selling the same contract to create fake trading volume and manipulate the market.
Q: How did researchers identify fake trades on Polymarket?
Researchers developed an algorithm to identify accounts engaging with a small subset of other accounts, regularly buying or selling contracts to each other.
Be aware that a significant portion of trading volume on Polymarket may be artificial.
Exercise caution when making trading decisions based on volume, as it may not accurately reflect genuine interest.
Understand that the use of cryptocurrencies can potentially facilitate market manipulation.
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