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A substantial amount of Polymarket’s trading is being faked by traders, according to a recent study by Columbia University researchers.
Nearly 25% of Polymarket’s volume over the past three years appeared to be wash trading, which is when traders create false market activity by repeatedly buying and selling an asset without actually changing their market position, Columbia University researchers said in a paper released on Nov. 6.
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About 14% of the 1.26 million wallets that have traded on Polymarket were flagged by their algorithm, the researchers said. They evaluated Polymarket data from November 2022 to the middle of last month, using an algorithm that identified accounts that repeatedly opened and closed positions and primarily traded with accounts with similar activity. The theory? Wash traders tend to form closed trading clusters.
The researchers said their findings were only “estimates” and did not accuse Polymarket of being complicit in the wash trading activity on the platform. However, they said the platform was particularly susceptible to it due to its lack of transaction fees and the pseudonymity of blockchain technology.
Wash trading volume on Polymarket peaked at 60% of the platform’s total trading volume in December 2024, then crashed to less than 5% in May and bounced back to roughly 20% last month, the researchers said.
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The wash trading volume also differed across markets. The researchers found that sports markets were particularly rife with wash trading, with 45% of the historical volume flagged by their algorithm. That figure peaked at 90% for the week that began Oct. 21, 2024, they said.
Comparatively, only 17% of Polymarket’s total election markets volume is estimated to be wash trading, though that number peaked at a staggering 95% during the week that began March 25, they said.
Researchers said a major incentive for Polymarket wash trading activity was likely users trying to game the platform’s planned airdrop.
After several teasers, Polymarket Chief Marketing Officer Matthew Modabber confirmed the token plans last month but said it would only be airdropped after the platform successfully returns to the U.S. market.
