Author: Fortune
Compiled by: Felix, PANews
Prediction market Polymarket exploded in popularity during the 2024 U.S. election, with the platform reporting that $2.7 billion had been staked on whether Trump or Harris would be elected president in early November.
While Polymarket’s odds have been widely shared on social media and mainstream media, analysts from two crypto research firms have discovered rampant wash trading on Polymarket. It is worth mentioning that the Polymarket platform shows that Trump’s current probability of winning is 67%.
In separate investigations completed by blockchain firms Chaos Labs and Inca Digital, analysts found signs of wash trading on the Polymarket platform. Wash trading is a form of market manipulation in which stocks are bought and sold simultaneously to create the illusion of booming trading volume and activity. Chaos Labs reported that wash trading accounted for approximately one-third of Polymarket presidential election market trading volume, while Inca Digital found that a “significant portion” of the market’s trading volume could be attributed to potential wash trading.
Other prediction markets, including Kalshi and Robinhood, have launched in the U.S. since a key court ruling legalized election betting last September. Although still inaccessible to U.S. investors, Polymarket remains by far the largest prediction platform (partly due to its crypto-native design and offshore operations). With less than a week to go before Election Day, suspicious activity on Polymarket has raised questions about the accuracy of the site, whose 26-year-old founder Shayne Coplan has claimed that the site can "unveil the real world's most important questions about you." The mystery of important events".
A Polymarket spokesperson stated: "Polymarket's terms of use expressly prohibit market manipulation." "We strive to provide users with the fairest analysis possible, and let the market determine how transparent we are."
The rise of prediction markets
Founded in 2020 and backed by venture capital including Peter Thiel’s Founders Fund, Polymarket had attempted to launch election betting in the United States, but was forced to operate offshore by the U.S. Commodity Futures Trading Commission (CFTC) in early 2022.
Unlike competitors like Kalshi, which recently won a lawsuit against the CFTC and was allowed to operate in the United States, Polymarket runs its platform on the Ethereum blockchain. Polymarket founder Shayne Coplan said that the encryption element provides greater visibility for its betting activities. “The genius of Polymarket is that it is completely peer-to-peer and transparent.”
During the recent presidential election, betting volume on the Polymarket platform surged. Media outlets ranging from The Wall Street Journal to Fortune reported on the betting odds on its platform, and opinion polls even used its platform data as an indicator. US pollster Nate Silver also joined Polymarket as a consultant in July.
Polymarket’s encryption design and offshore operations have drawn scrutiny from other quarters. These include recent reports of manipulative trading practices on the site. Most notably, a French trader allegedly caused Trump's odds to spike. Polymarket insists that the user has "extensive trading experience" and did not act maliciously.
Wash trade
The evidence of wash trading appears to be solid evidence of misconduct on the platform. To conduct the analysis, Chaos Labs looked at on-chain data to eliminate high-volume traders and filter out users who may be engaged in normal activities such as market making. Users with signs of fake trading are then screened out, their buy and sell order ratios are checked, and their holdings are compared to trading volume. Chaos Labs concluded that about a third of the trading volume on presidential forecasts alone was likely fake, and the same was true across all markets.
The practice of wash trading is common among crypto applications, especially those with the potential for future token issuances and airdrops. In September, (The Information) reported that Polymarket was already exploring launching its own proprietary token.
Omer Goldberg, founder of Chaos Labs, said, “The challenges faced by prediction markets are no different from any other marketable application.” "False trading is not unique to Polymarket."
Trading Volume
Both Chaos Labs and Inca Digital also discovered another Polymarket exception: Presidential Market volume reported in U.S. dollars on the Polymarket website did not match the on-chain data. Inca found actual trading volume in the presidential betting market to be around $1.75 billion, compared with $2.7 billion reported by Polymarket.
Chaos Labs attributes this to Polymarket conflating transaction shares with U.S. dollars. Rather, users can purchase shares of candidates at varying odds. Given the slim chance of Clinton being elected, each “yes” share was only $0.01, but Chaos Labs found that Polymarket reported this share as $1 in volume.
The discrepancy, along with the fake transactions, underscores the uncensored nature of the platform that many rely on for information about the presidential election.
Omer Goldberg, founder of Chaos Labs, said: “Companies like Polymarket want to attract real users and build trust in their markets. Identifying and reducing fake transactions is critical to ensuring that prediction markets represent everyone, and that market prices and trading volumes are determined by real, long-term determined by the user base rather than being confused by false transaction traffic.”
(The above content is excerpted and reprinted with the authorization of our partner PANews, original text link)
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"Polymarket's transaction volume does not match the data on the chain. How serious is "wash trading"? "This article was first published on (Block Guest).