But analysts at two crypto research firms have found evidence of rampant wash trading on Polymarket, although the likelihood was widely shared on social media and mainstream media. According to the platform, Donald Trump currently has a 67% chance of winning.

In separate research conducted by blockchain firms Chaos Labs and Inca Digital and shared exclusively with Assets, Analysts noted that Polymarket activity showed signs of wash trading, a form of market manipulation in which stocks are often bought and sold simultaneously and repeatedly to create a false impression of volume and activity. Chaos Labs found that wash trading accounted for about a third of trading volume on Polymarket's presidential market, while Inca Digital noted that a “significant portion of the volume” in the market was due to potential wash trading, according to its report.

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While other prediction markets, including Kalshi and Robinhood, have launched in the US since a crucial court decision legalized election betting in September, Polymarket remains by far the largest platform, thanks in part to its crypto-native design and offshore operations. Polymarket remains inaccessible to US investors. Still, the suspicious activity on Polymarket less than a week until Election Day raises questions about the accuracy of the site, which, as its 26-year-old founder Shayne Coplan has touted, “can demystify the real-world events that matter most.” . to you.”

“Polymarket’s terms of service expressly prohibit market manipulation,” a Polymarket spokesperson said in a statement shared with Assets after publication. “We strive to provide users with the fairest analysis possible, and our transparency allows the market to decide.”

The rise of prediction markets

Polymarket was founded in 2020 and was backed by VCs including Peter Thiel's Founders Fund. It attempted to launch election betting in the U.S. before being forced abroad by the Commodity Futures Trading Commission in early 2022.

Unlike competitors like PredictIt and Kalshi, which recently prevailed in a lawsuit against the CFTC to operate in the US, Polymarket operates its platform on the Ethereum-based blockchain Polygon. According to Coplan, the crypto element provides greater visibility into its trading activities. “The beauty of Polymarket is that everything is peer-to-peer and transparent,” he recently posted on X.

Polymarket volume exploded during the recent presidential election, with branches from the Wall Street Journal To Assets The company reports betting odds on its platform alongside more traditional metrics like survey data. In a sign of increased credibility in prediction markets, pollster Nate Silver joined Polymarket as a consultant in July.

Polymarket's crypto design and offshore operations have come under scrutiny from other quarters. These include recent reports that there is manipulative trading on the site – most notably by a single French trader who allegedly caused Trump's chances to skyrocket. Polymarket has insisted that the user has “extensive trading experience” and has not traded nefariously.

Wash trade

Evidence of wash trading appears to be a serious sign of wrongdoing on the platform. To conduct its analysis, Chaos Labs examined on-chain data to isolate high-volume traders and filter out users who were likely engaged in normal activities such as market making. It then separated users who showed signs of wash trading by examining their ratio of buy and sell orders and considering their stock holdings compared to their trading volume. Chaos Labs concluded that about a third of the trading volume – and total users – in the Presidential market alone and across all markets was likely wash trading.

This practice is common across all crypto applications, especially those with the potential for future token launches and airdrops, with users often earning tokens based on their activity. The Information reported in September that Polymarket was exploring launching its own proprietary token.

“The challenges of prediction markets are not dissimilar to those of any other single-market application,” said Omer Goldberg, founder of Haun Ventures-backed Chaos Labs, which develops data integrity software. “Wash trading is not specific to Polymarket.”

Trading volume

Both Chaos Labs and Inca Digital noticed another anomaly with Polymarket: the alleged trading volume on its Presidential Market, reported in US dollars on Polymarket's website, does not match the on-chain data. Inca found that the actual transaction volume in the presidential betting market is about $1.75 billion, compared to the $2.7 billion figure reported by Polymarket.

Chaos Labs attributed this to Polymarket confusing stocks traded with US dollars. To put it more clearly, users can buy shares of candidates at different rates. A Hillary Clinton “yes” share for president costs just $0.01, given the high unlikelihood of her being elected, but Chaos Labs found that Polymarket quotes that share as $1 in volume.

This discrepancy, along with wash trading, underscores the untested nature of a platform that many rely on for signals about the presidential election.

However, Polymarket's decision to operate on blockchain rails also means that researchers such as Chaos Labs and Inca Digital can analyze activity. Coplan has described users' ability to check Polymarket as a “feature, not a bug.”

“These companies want to attract real users and build trust in their markets,” Goldberg said. “Identifying and reducing wash trading is critical to ensuring that prediction markets are representative of all and that market prices and volumes are determined by an authentic, persistent user base and are not disrupted by inorganic flows.”