"25% of trading on Polymarket may be fake."

Columbia University researchers discovered that a significant portion of the trading on the Polymarket platform is fraudulent. Over the course of three years, it was determined that nearly 25% of the platform's trading volume was associated with a type of fake market activity known as 'wash trading.' 'Wash trading' refers to the false traffic created by investors buying and selling an asset repeatedly without changing their market positions.

The analysis indicated that approximately 14% of the 1.26 million wallets trading on Polymarket were notably flagged due to abnormal activities identified by algorithms. Researchers examined data from October 2022 to mid-2023 and detected accounts that continuously opened and closed positions. The study noted that wash traders tend to create closed trading clusters.

Researchers emphasized that the results are only a “guess,” but highlighted that the Polymarket platform's absence of trading fees and the privacy provided by blockchain technology leave it open to such activities. The wash trading volume on Polymarket rose to as high as 60% of the total trading volume in December 2024, subsequently dropped below 5% in May, and returned to approximately 20% last month.

It was observed that wash trading volumes varied across different markets. Specifically, analyses of sports markets showed that 45% of the total historical volume was classified as wash trading. This figure surged to as high as 90% for the week starting October 21, 2024. In comparison, it is estimated that only 17% of the total election market volume on Polymarket was wash trading, though this number reached up to 95% for the week starting March 25.

Researchers suggested that the wash trading activities on Polymarket might be driven by users attempting to manipulate the platform's planned token airdrop. Polymarket Marketing Director Matthew Modabber confirmed the token plans last month but stated that the airdrop would not be distributed until the platform returns to the US market.

In 2022, Polymarket blocked US users as part of a settlement with the Commodity Futures Trading Commission. Planning to return to the US market by acquiring a regulated exchange in July, the platform began conducting beta tests. Researchers expressed that wash trading might raise questions about the actual role of prediction markets and could impair users' ability to assess market sentiment.

Polymarket did not comment on the matter.