A new academic paper is raising questions about the true scale of trading on Polymarket, one of crypto’s fastest-growing prediction platforms. Columbia University researchers say that as much as a quarter of its activity could be fake —created by users trading with themselves or coordinated networks of wallets to inflate apparent market volume.

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The study, published Thursday, analyzed over two years of blockchain data and found widespread evidence of wash trading — the rapid buying and selling of contracts to simulate real activity without changing overall market exposure.

Wash Trades Inflate Activity Across Markets

Researchers estimate that fake trades accounted for nearly 25% of total historical volume. The problem intensified in late 2024, when around 60% of weekly activity was flagged as suspicious. Sports and election prediction markets were hit hardest, with some weeks showing over 90% of trades classified as likely wash trading.

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Columbia’s research team developed an algorithm to detect coordinated trading behavior, tracking wallets that opened and closed positions within seconds and repeatedly traded with one another.

The analysis uncovered intricate clusters of accounts — some involving more than 43,000 wallets — collectively responsible for about $1 million in trading volume, much of it at negligible prices. In many cases, contracts appeared to change hands through long chains of wallets to mimic genuine market flow.

The researchers also traced patterns of USDC transfers across these wallets, suggesting users recycled the same funds to inflate metrics. Despite high trading volume, the suspected accounts made little or no profit, pointing to a different motive altogether.

Incentives, Not Profit, May Drive Fake Trades

The Columbia team believes the wash trading was not intended to earn money directly but to position traders for potential rewards such as token airdrops or platform rankings.

Polymarket, which lets users bet on yes/no outcomes using the USDC stablecoin, charges no trading fees and doesn’t require identity verification — factors that may have made the platform especially vulnerable to this type of manipulation.

The paper also notes that speculation around a forthcoming Polymarket token could have encouraged users to boost their trading statistics in anticipation of future distributions.

Polymarket has faced manipulation claims before, especially around politically charged events like the U.S. presidential election. Not everyone agrees with the accusations.

Source: Finance Magnates