- 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 as Polymarket prepares for a regulated U.S. return.
A new study by researchers at Columbia University found that nearly a quarter of all trading on Polymarket, one of the world’s leading decentralized prediction platforms, was artificially inflated by wash trading over the past three years.
Using blockchain analysis, the researchers traced millions of transactions on the Polygon network and uncovered widespread patterns of self-trading that painted a misleading picture 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 maintain 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 developing algorithms to detect repetitive 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 with one another but rarely interacted with the wider market, indicating self-trading activity rather than genuine speculation.
The study estimates that wash trading accounted for an average of 25% of total Polymarket transactions since 2021.
The frequency of this artificial activity fluctuated over time, peaking at 60% in December 2023 before falling to roughly 5% in May and then rising again to about 20% in October.
These results illustrate how easily decentralized markets can be manipulated when transaction costs are negligible and identities remain pseudonymous.
The authors, including professors Yash Kanoria and Hongyao Ma of Columbia Business School, economist Rajiv Sethi of Barnard College, and doctoral candidate Allen Sirolly, stressed that their estimates are not definitive.
Still, the data reveal a consistent pattern that calls into question whether on-chain markets accurately reflect real sentiment and liquidity.
Token speculation may have driven artificial activity
The study did not assert that Polymarket itself was directly involved, but it identified structural features that made wash trading possible.
The exchange charges no transaction fees, supports self-custody wallets, and settles in stablecoins, enabling traders to run multiple pseudonymous accounts without meaningful cost.
The researchers also linked several spikes in artificial volume to rumors of a potential Polymarket token launch.
In decentralized finance, such speculation can motivate traders to inflate activity in hopes of qualifying for “airdrop” rewards when a new token is released.
In early October, Polymarket founder Shayne Coplan published a social media post hinting at a possible token, which coincided with one of the sharp increases in wash trading.
Sirolly noted that authentic trading volumes tended to rise around tangible events such as election surveys or sports results, whereas wash trading peaks aligned more closely with token-related rumors.
This suggests some users traded not for market insight but to gain eligibility for future reward distributions.
Regulation and competition in the industry
Founded in 2020, Polymarket has become one of the most active blockchain-based prediction platforms, allowing users to bet 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 scrutiny of its data.
The timing of the report is notable. In 2022 Polymarket reached a $1.4 million settlement with the Commodity Futures Trading Commission (CFTC) for operating an unregistered exchange and subsequently banned U.S. users.
Despite regulatory pressure, Polymarket remains attractive to institutional investors.
Intercontinental Exchange Inc., owner of the New York Stock Exchange, recently indicated plans to invest up to $2 billion in the company, underscoring mainstream finance’s growing interest in blockchain prediction markets.