Columbia University Study: Polymarket's trading volume is suspected to be inflated by 1/4! Is it difficult to catch the elusive mice in prediction markets?

Columbia University research indicates that nearly a quarter of trading volume on the prediction market Polymarket may be wash trading, challenging the credibility of prediction markets. (Background: Polymarket, valued at $8 billion, received a $2 billion investment from Intercontinental Exchange, with ICE stock rising 3.7% pre-market) (Additional context: Polymarket returns to the US, where is the next opportunity for prediction markets?)

In the context of blockchain prediction markets being viewed as the “new frontier of trading markets,” the latest study released by Columbia University on November 7 may be exposing its halo. The research states that approximately one-quarter of the trading volume on the well-known platform Polymarket appears to be wash trading and active user manipulation. During peak periods such as major elections and sports markets, the proportion of “fake volume” once exceeded 90%.

The research team analyzed on-chain data from 2022 to October 2025, using network algorithms to identify 43,000 interconnected wallets, revealing the truth behind the seemingly prosperous yet actually inflated data in the decentralized world.

Scale and Methods of Wash Trading The report notes that during certain weeks in December 2024, about 60% of ongoing trades on Polymarket could be classified as wash trading; during the March 2025 presidential election-related contracts, this figure surged above 90%. By comparing transfer frequency, holding times, and price differences between wallets, researchers found many orders that repeatedly bought and sold at less than one cent USD, not for profit but to artificially inflate activity volume.

The study concludes that if these abnormal behaviors are not excluded, any analysis relying on total volume metrics will be significantly misleading.

Distorted Incentive Mechanisms The team believes that Polymarket’s design—“no identity verification,” “zero fees,” and the use of USDC stablecoins—combined with airdrops, leaderboards, and other reward mechanisms, makes wash trading a low-cost, high-reward strategy. Compared to traditional regulated exchanges, the lack of KYC and reporting requirements amplifies risks. Rutgers University statistics professor Harry Crane has a different view on wash trading, stating in an interview that such manipulation “may be exaggerated or even politically motivated,” but he did not provide empirical evidence to counter the scale of wash trading data.

Is Regulatory Pressure Coming? Timing is particularly sensitive. In 2022, Polymarket settled with the CFTC for $1.4 million due to unregistered derivatives activities; the team is now pushing to re-enter the US market and planning token airdrops.

Further reading: Polymarket launches a “Financial Report Prediction Market” for US-listed companies (Trade Earning). Meanwhile, the company is seeking to raise funds with a valuation between $12 billion and $15 billion.

This Columbia University research serves as a warning to potential investors and highlights the gap faced by traditional regulatory frameworks in the anonymous, cross-border DeFi space.

The study recommends that platforms proactively deploy algorithms to detect suspicious wallets, exclude them from trading volume statistics and reward programs, and publicly mark them for third-party verification. This approach is also applicable to other DeFi projects, especially those that demonstrate utility through “usage” metrics. For prediction markets, if data authenticity cannot be ensured, the so-called wisdom of the crowd becomes meaningless.