25% Wash Trading on $10B Polymarket Revealed by Columbia Study
A Columbia University working paper analyzed two years of on-chain data from Polymarket, uncovering that around 25% of its trading volume may be attributable to wash trading, spiking to 60% during major events. Despite questions over data “inflation,” prediction markets have surged thanks to regulatory clarity: the CFTC dropped charges against Kalshi and issued a no-action letter to Polymarket this year. Backing by Donald Trump Jr.’s 1789 Capital, ICE’s $2 billion investment valuing Polymarket at $8 billion, and Kalshi’s $5 billion valuation reflect growing capital inflows. Polymarket now seeks a $12–15 billion valuation in a new funding round. Integration into Google Finance has further boosted exposure, driving October trading volumes above $3 billion and user growth of 93.7%. Critics note that wash trading levels are mid-range compared to early crypto exchanges and emphasize predictive accuracy, calibration, liquidity, and slippage as more meaningful metrics. With mainstream institutional support and policy shifts, prediction markets are poised for expansion, though legal debates over their classification as derivatives or gambling persist.
Neutral
The report’s revelation of substantial wash trading introduces a credibility concern for Polymarket, yet the broader trend of regulatory approval from the CFTC, major investments by ICE and 1789 Capital, and integration into Google Finance suggest balanced drivers. Historical precedents show that while wash trading can inflate volumes temporarily, clear legal frameworks and institutional backing tend to stabilize markets and attract genuine liquidity. Short term, traders may exercise caution on apparent volume metrics and focus more on accuracy and liquidity measures. Long term, the legitimization of prediction markets under U.S. regulatory oversight and infrastructure partnerships supports sustainable growth, making the overall impact neutral rather than strongly bullish or bearish.