- About 14% of wallets exhibited behavior consistent with coordinated wash trading.
- Artificial trading peaked at 60% in December 2023 and fell to 5% by May.
- ICE plans to invest up to $2 billion while Polymarket prepares for a regulated U.S. offering.
A new study by researchers at Columbia University found that nearly a quarter of all trading on Polymarket, one of the leading decentralized prediction platforms, was artificially inflated by wash trading over the past three years.
Using blockchain analytics, the team traced millions of transactions on the Polygon network and identified widespread patterns of self-dealing that gave a misleading impression of market depth and liquidity.
The 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 regulatory mechanisms.
Algorithmic analysis exposes trading manipulation
The researchers analyzed millions of wallet transactions recorded on the Polygon blockchain, where all Polymarket activity is publicly verifiable.
By developing algorithms to detect repetitive and circular trading patterns, they determined that 14% of the platform’s 1.26 million wallets exhibited behavior consistent with wash trading.
These accounts traded with one another repeatedly but rarely interacted with the wider market, a pattern more indicative of self-dealing than genuine speculation.
According to the study, wash trading accounted for an average of 25% of Polymarket’s total transactions since 2021.
The prevalence of this artificial activity varied over time, peaking at 60% in December 2023, dropping to about 5% in May, and rising again to roughly 20% by October.
The results highlight 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 from Barnard College, and PhD candidate Allen Sirolly, emphasized that their estimates are not definitive.
Nevertheless, the data reveal a consistent pattern that calls into question how accurately on-chain markets reflect real sentiment and liquidity.
Token speculation may have driven artificial activity
While the study stopped short of accusing Polymarket itself of direct involvement, it identified platform features that enable wash trading.
The exchange charges no transaction fees, supports self-custody crypto wallets, and settles in stablecoins, making it inexpensive for traders to operate multiple pseudonymous accounts.
Researchers also linked several spikes in artificial volume to rumors about a potential Polymarket token launch.
In decentralized finance, speculation about an upcoming token can encourage users to inflate activity in hopes of qualifying for “airdrop” rewards when a token is released.
In early October, Polymarket founder Shayne Coplan posted a hint on social media about a possible token, coinciding with one of the pronounced wash trading surges.
Sirolly observed that genuine trading volumes tended to rise around real-world events like polls or sporting outcomes, whereas spikes in wash trading more often matched token speculation.
This suggests some participants were trading not for market insight but to become eligible for potential reward distributions.
Regulatory context and industry competition
Founded in 2020, Polymarket has grown into one of the most active blockchain-based prediction platforms, allowing users to wager on political, financial, and cultural outcomes.
Its nearest competitor, Kalshi Inc., operates under U.S. regulation but is not blockchain-based, which limits external verification of its data.
The timing of the report is notable. In 2022 Polymarket settled with the U.S. Commodity Futures Trading Commission (CFTC) for $1.4 million over operating an unregistered exchange and subsequently blocked U.S. users.
Despite regulatory pressure, Polymarket continues to attract institutional interest.
Intercontinental Exchange Inc., the owner of the New York Stock Exchange, recently announced plans to invest up to $2 billion in the company, underscoring growing mainstream financial interest in blockchain prediction markets.