Predictions Platform Polymarket Volume Inflated by ‘Wash Trading’: Columbia Research

A recent study from Columbia University has brought to light a significant issue within the crypto prediction market space, specifically concerning Polymarket, a prominent platform in this emerging sector. The research indicates that a substantial portion of Polymarket’s reported trading volume may be artificially inflated due to a practice known as “wash trading.” This finding raises important questions about market integrity and the true nature of activity on such platforms.

Understanding Wash Trading: The Illusion of Activity

Wash trading is a manipulative tactic where an individual or coordinated group simultaneously or near-simultaneously buys and sells the same financial instrument, creating a misleading impression of high trading volume and demand. Essentially, no real change in beneficial ownership occurs, but the activity makes a market appear more liquid and active than it genuinely is.

This practice is illegal in traditional financial markets and is considered a form of market manipulation, as it can deceive other investors and distort market data. In the less regulated cryptocurrency space, however, wash trading has been observed more frequently, often employed to boost perceived popularity or attract new users to platforms.

Columbia University’s Research: Shedding Light on Polymarket’s Volume

The Columbia University study, leveraging on-chain data analysis, found that “artificial trading” has accounted for approximately 25% of all buy and sell transactions on Polymarket over the past three years. This suggests that a considerable segment of the platform’s reported activity does not represent genuine market interest. The research specifically detailed the prevalence of wash trading across different market categories on Polymarket:

• **Sports Markets:** Showed the highest incidence, with 45% of all-time volume attributed to wash trades.
• **Election Markets:** Saw 17% of their volume linked to artificial trading.
• **Politics Markets (general):** Experienced 12% wash trading.
• **Crypto Markets:** Had a comparatively lower, but still present, 3% of their volume from wash trades.

Yash Kanoria, a professor at Columbia University’s business school and a co-author of the study, expressed optimism that Polymarket would welcome the analysis, emphasizing that “Wash trading doesn’t add liquidity or information to the market, so it would seem valuable to distinguish authentic from inauthentic volume.”

Polymarket’s Stance and Recent Growth

In response to the study’s findings, a Polymarket representative reportedly indicated that the prediction market is reviewing the research and has no immediate comment. This research emerges amidst a period of significant growth for Polymarket. The platform reached record highs in October for trading volume, active traders, and the launch of new markets. Its trading volume reportedly hit an unprecedented $2.59 billion during that month.

Further underscoring its expansion, Polymarket recently announced securing $205 million in previously undisclosed funding rounds between 2024 and 2025, which valued the firm at $1.2 billion.

Implications for Market Integrity and User Trust

The presence of significant wash trading has several critical implications for a prediction platform like Polymarket. For users, artificially inflated volumes can create a false sense of market depth and popularity, potentially drawing in genuine participants under misleading pretenses.

The core value proposition of prediction markets often lies in their ability to aggregate collective intelligence and forecast outcomes with accuracy. If a substantial portion of the activity is artificial, it could compromise the reliability of the “wisdom of the crowd” and the platform’s overall credibility.

Regulatory Scrutiny and Polymarket’s Path Forward

Polymarket has historically faced regulatory challenges, particularly in the United States. In 2022, the U.S. Commodities and Futures Trading Commission (CFTC) fined Polymarket $1.4 million and issued a cease and desist order, labeling its prediction markets as “binary options” that required registration as a designated contract market or swap execution facility. This action led Polymarket to restrict access for U.S. users.

Despite these past hurdles, and amidst continued scrutiny from regulators in various jurisdictions, recent developments suggest a potential path for Polymarket’s re-entry into the U.S. market, following its acquisition of a CFTC-licensed derivatives exchange and clearinghouse in July 2025. This evolving regulatory landscape, coupled with the findings of the Columbia research, highlights the ongoing need for transparency and robust mechanisms to ensure genuine market activity in prediction platforms.

Conclusion

The Columbia University research indicating that Polymarket’s volume is inflated by wash trading serves as a crucial reminder of the challenges inherent in maintaining market integrity, particularly within the nascent and often less regulated world of decentralized finance and prediction markets. While Polymarket has demonstrated substantial growth and secured significant funding, the findings prompt a closer examination of the authenticity of trading activity. Moving forward, the industry will likely face increasing pressure to develop more sophisticated methods for detecting and preventing manipulative practices like wash trading, ensuring that these platforms can truly serve as reliable indicators of future events.