Recent analyses by blockchain tracking firms suggest that Polymarket, a decentralized prediction market, may have extensive wash trading activity, as reported by Fortune. Wash trading, illegal in traditional finance, involves a trader simultaneously buying and selling the same assets, thereby inflating trading volumes and creating an impression of heightened demand. Chaos Labs, a blockchain analytics firm, found that roughly one-third of Polymarket’s trading volume—specifically in presidential election bets—could be wash trades. Another research firm, Inca Digital, reported similar findings, indicating that a “significant portion” of Polymarket’s overall trading activity might stem from wash trading.
Fortune speculates that these trades aren’t designed to sway political outcomes. Instead, the report highlights a possible link to Polymarket’s potential token launch, where users anticipate future token distributions, a practice known as “airdrop farming.” Airdrop farming often incentivizes wash trading, as users attempt to qualify for token giveaways based on high trading activity. Prominent investor Nic Carter echoed this theory, suggesting that airdrop eligibility, rather than political manipulation, could be driving the inflated trade volumes.
Adding another layer of complexity, prediction markets often quote trading volume as the potential payout, meaning even if a trader pays a fraction of a dollar for a position, it might still be tallied as a full dollar in volume. Polymarket uses this approach, which is common in futures markets, according to longtime prediction market trader Flip Pidot. However, Fortune raised concerns about this metric, suggesting it might further contribute to misleading volume data.
While earlier reports had speculated about political motives, including an attempt by a “whale” trader to influence Trump’s betting odds, Polymarket clarified that a few high-volume accounts with pro-Trump positions are held by a single trader from France, likely aiming for profit rather than political impact. The emerging scrutiny of Polymarket highlights ongoing challenges in maintaining transparency and preventing manipulation in decentralized prediction markets.
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