Polymarket, a major player in blockchain-based prediction markets, faces scrutiny over potentially inflated trading volumes due to a practice known as wash trading, according to a recent study from researchers at Columbia University. In their paper, released on Thursday, the researchers analyzed two years’ worth of on-chain data and determined that approximately 25% of Polymarket’s historical trading volume involved users engaging in rapid buying and selling of contracts—often with themselves or in collusion with other accounts—to artificially inflate trading metrics without altering their actual market positions.
Wash trading, while illegal in traditional finance, is common in the cryptocurrency sector, particularly in platforms where user identities can be concealed. The study reveals that the volume of suspected wash trades reached a staggering 60% of weekly trading volume at its peak in December 2024, continuing to be an issue well into October 2025. Notably, sports and election markets appeared to be the most affected categories; in some instances, over 90% of transactions in these areas were found to be inauthentic.
To uncover these practices, the researchers developed an innovative algorithm that analyzes wallet behavior, focusing on the frequency of users opening and swiftly closing positions, particularly in transactions with other wallets demonstrating similar activity patterns. This method effectively identified not only straightforward back-and-forth trades but also intricate networks of wallets creating trading loops or clusters. One specific cluster involving over 43,000 wallets was linked to nearly $1 million in trading volume, primarily at prices below a penny, with almost the entire amount flagged as likely wash trading.
Evidence from the study indicates that some traders cycled contracts through numerous wallets in quick succession, occasionally retaining losing positions to generate the impression of legitimate trading activity. The analysis further revealed users transferring USDC across multiple wallets as a strategy to recycle capital, signaling organized attempts at manipulation. Intriguingly, many of the wallets suspected of engaging in wash trading reported no real profits, suggesting that the intent may have been to exploit potential future incentives, like token airdrops or enhanced platform rankings, rather than to achieve immediate financial gains.
Polymarket, which facilitates betting on binary outcomes using USDC, operates without requiring identity verification and does not levy trading fees, characteristics that researchers argue render it particularly susceptible to wash trading. Speculation about the introduction of a future token could also serve as a motivator for manipulating trading volumes.
Although Polymarket has faced allegations of manipulation in the past, especially regarding politically sensitive events like the U.S. presidential election, there are dissenting opinions about these claims. Harry Crane, a statistics professor at Rutgers, posits that concerns over manipulation might be exaggerated or politically motivated tactics designed to undermine the credibility of these markets, which pose a risk to traditional media narratives.
Despite differing viewpoints, the Columbia University researchers maintain that artificially inflated trading volumes can distort users’ perceptions of market sentiment. They advocate for the use of network-based algorithms to detect suspicious trading behaviors, aiming to restore trust in these emerging financial tools.
Polymarket has not responded to requests for comment on the study. The company is currently in the process of re-entering the U.S. market after previously resolving issues with regulators, during which it plans to launch a token. Simultaneously, Polymarket is reportedly seeking to raise funds, with an estimated valuation of up to $15 billion.
