According to Fortune, a new Columbia University study found that artificial trading activity accounted for an average of 25% of all Polymarket volume over the past three years. The research, posted Thursday on SSRN without peer review, identified 14% of the platform’s 1.26 million wallets showing wash trading patterns. Professor Yash Kanoria and three co-authors discovered this activity peaked at 60% last December, dropped to 5% in May, then rebounded to 20% in early October. Polymarket representatives said they’re reviewing the study while the company prepares to return to the US market after acquiring CFTC-regulated exchange QCX. The findings come as Polymarket recently announced potential $2 billion investment from Intercontinental Exchange Inc.
The wash trading patterns are revealing
Here’s the thing about wash trading—it’s when traders essentially trade with themselves to create artificial volume. The Columbia researchers could spot this because Polymarket runs on the public Polygon blockchain, meaning every transaction is visible. They found these wash trading wallets frequently transacted with each other but rarely with genuine market participants. What’s really interesting? The artificial activity varied dramatically by category—45% of sports trading looked fake, compared to just 17% of election markets. That tells you something about where the real interest lies versus where people are gaming the system.
The token incentives problem
So why would anyone bother with wash trading? The researchers suggest it might be about positioning for potential token airdrops. Polymarket founder Shayne Coplan hinted at a possible token launch back in October, and in crypto land, airdrops often reward the most active users. Doctoral student Allen Sirolly noted that “peaks in organic trading and authentic volume are linked to news about the referenced events, but peaks in wash trading are more likely to be linked to rumors about token issue.” Basically, people are gaming the system to look like super-users in hopes of scoring free tokens later. It’s the crypto equivalent of stuffing the ballot box.
Broader implications for prediction markets
This is actually a pretty big deal for prediction markets. The whole premise is that these platforms reflect the “wisdom of the crowd”—that the betting odds represent collective intelligence about real-world events. But if a quarter of the activity is fake, how wise is that crowd really? The study concludes that “volume may be unreliable as a metric of authentic platform activity,” which undermines one of prediction markets’ main value propositions. And it’s not just an academic concern—Polymarket’s chief rival Kalshi has recently been attracting more volume, partly due to sports betting popularity. Though we can’t verify Kalshi’s numbers since it doesn’t operate on a public blockchain.
The structural issues run deep
Polymarket’s very design makes wash trading easy. Zero transaction fees mean it costs nothing to trade back and forth. The decentralized, pseudonymous wallet system lets users create unlimited accounts. And trading with crypto stablecoins means no banking relationships to verify identity. It’s the perfect storm for manipulation. Remember, this isn’t Polymarket’s first regulatory rodeo—they paid $1.4 million in 2022 for operating an unregistered exchange and only recently had CFTC and DOJ investigations closed. Now they’re planning a US return, but with 25% potentially fake volume, how reliable are those impressive growth numbers investors are seeing?
This is crypto’s recurring nightmare
Wash trading has been plaguing crypto since forever. A 2022 study found it might account for 70% of volume on unregulated exchanges. The pattern is always the same: artificial volume inflates rankings, attracts investors, and creates the illusion of liquidity. The question is whether Polymarket will actually do anything about it. The researchers say they’re hopeful the platform will welcome their analysis. But let’s be real—when fake volume makes your platform look more successful than it actually is, where’s the incentive to crack down? Especially when you’re trying to justify that $2 billion investment and make a big US comeback.
