- About 14% of wallets exhibited behavior consistent with coordinated wash trading.
- Artificial trading peaked at 60% in December 2023 and fell to 5% in May.
- ICE plans to invest up to $2 billion while Polymarket prepares for a regulated U.S. return.
A new study by researchers at Columbia University found that nearly a quarter of all trading activity on Polymarket, one of the leading decentralized prediction platforms, has been artificially inflated by wash trading over the past three years.
Using blockchain analytics, the team tracked millions of transactions on the Polygon network and uncovered widespread patterns of self-trading that created a misleading impression of market depth and liquidity.
These findings challenge the assumed transparency of blockchain-based prediction markets and raise broader questions about how decentralized finance can preserve integrity while operating without traditional oversight mechanisms.
Algorithmic analysis exposes trading manipulation
The research team analyzed millions of wallet transactions recorded on the Polygon blockchain, where all Polymarket activity is publicly verifiable.
By designing algorithms to detect repeated and circular trading patterns, they identified that 14% of the platform’s 1.26 million wallets showed behavior consistent with wash trading.
Those accounts traded repeatedly among themselves but rarely interacted with the wider market, indicating self-trading activity rather than genuine speculation.
According to the study, wash trading accounted for an average of 25% of total Polymarket transactions since 2021.
The incidence of this artificial activity varied over time, peaking at 60% in December 2023 before falling to roughly 5% in May, and later rising again to about 20% in October.
The results illustrate how easily decentralized markets can be manipulated when transaction costs are negligible and identities are pseudonymous.
The authors, including Columbia Business School professors Yash Kanoria and Hongyao Ma, economist Rajiv Sethi of Barnard College, and PhD student Allen Sirolly, emphasized that their estimates are not definitive.
Still, the data show a consistent pattern that calls into question how on-chain markets reflect real sentiment and liquidity.
Token speculation may have fueled artificial activity
Although the study did not allege direct involvement by Polymarket itself, it identified structural features that make wash trading possible.
The platform charges no transaction fees, supports self-custodied crypto wallets, and allows stablecoin settlements—features that enable traders to run multiple pseudonymous accounts at little meaningful cost.
Researchers also linked several spikes in artificial volume to rumors about a possible Polymarket token launch.
In decentralized finance, such speculation can prompt traders to inflate activity in hopes of qualifying for “airdrop” rewards when a new token is released.
In early October, Polymarket founder Shayne Coplan posted on social media hinting at a potential token, coinciding with one of the sharp increases in wash trading.
Sirolly noted that genuine trading volumes tended to rise around real-world developments such as polls or sporting results, while wash trading peaks aligned more closely with token-related rumors.
That pattern suggests some users were trading not for market insight but to position themselves for potential reward distributions.
Regulatory backdrop and industry competition
Founded in 2020, Polymarket has become one of the most active blockchain-based prediction platforms, letting users wager on political, economic, and cultural outcomes.
Its nearest competitor, Kalshi Inc., operates under U.S. regulation but does not run on a blockchain, which limits external verification of its data.
The timing of the report is notable. In 2022 Polymarket settled with the Commodity Futures Trading Commission (CFTC) for $1.4 million over operating an unregistered exchange, and subsequently barred U.S. users.
Despite regulatory pressure, Polymarket remains an attractive prospect for institutional investors.
Intercontinental Exchange Inc., the owner of the New York Stock Exchange, recently signaled plans to invest up to $2 billion in the company, underscoring growing interest from traditional finance in blockchain-based prediction markets.