Fortune reported that as much as one-third of the volume in the predictive market is inflated by traders acting as both buyers and sellers — an illegal practice in TradFi — on the same transaction. Some may do this to earn a future token airdrop.
Polymarket's predictive market is reportedly "rife" with wash trading, a type of illegal market manipulation in traditional finance related to the same person acting as both buyer and seller in a given transaction, Fortune reported on Wednesday, citing analyses from blockchain investigation firms.
The Fortune magazine article, released about a week after suspicions of another type of manipulation on Polymarket, cited research conducted by two blockchain analysis companies. One company, Chaos Labs, "concluded that about one-third of the trading volume — and total user count — solely on the presidential market is likely wash trading, along with all the markets." The other company, Inca Digital, "found that 'a significant portion of the volume' on the market could be due to potential wash trading," the magazine stated.
Wash trading is prohibited in TradFi because it can create a misleading impression of demand and the actual price of assets.
A spokesperson for Polymarket told CoinDesk: "As researchers have noted, one trader holding positions on both sides of the market is not unique to Polymarket and is not a problem in itself."
The spokesperson continued, unlike Wall Street, "Polymarket is transparent and publicly shares all transactions on its platform, including with researchers," and the company's terms of service "clearly prohibit market manipulation."
Fortune's article suggested that these alleged wash trades were driven by something more mundane than influencing the outcome of next week's U.S. presidential election. The article noted that Polymarket is reportedly considering launching its own token and wash trading is often done with cryptocurrency to qualify for token giveaways to active users, a practice known as "airdrop farming."
In a post on X (formerly Twitter), prominent cryptocurrency investor Nic Carter suggested that airdrop activity would be the most logical motivation for any such activity, rather than political antics.
Currently, Polymarket does not charge transaction fees, which will limit repeated buying and selling.
Flip Pidot, a veteran predictive market trader who has closely monitored activity on Polymarket, said without witnessing the research from Chaos Labs and Inca, he would find it difficult to assess the main claim of the Fortune article.
But he disagreed with a secondary claim in the article, which called it "unusual" for Polymarket to charge each transaction with a volume of $1, even if a trader only pays a penny for a share "yes" in Hillary Clinton winning this presidential election.
"Volume in the predictive market (and indeed futures markets in general) is often quoted in nominal value (i.e., payment value), as the article states, which is what Poly is doing," Pidot told CoinDesk. "If you buy a $1 payout position for $0.01 (and someone buys the other side for $0.99), then that is $1 of nominal volume."
Fortune's claim about wash trading on Polymarket differs from a statement that stirred public opinion about a week ago. The earlier story, which many market experts described as suspicious, involved a "whale" trader attempting to push up Donald Trump's presidential election odds on this platform, possibly to affect voter turnout or give Trump a reason to dispute the election results if he loses.
While Polymarket confirmed that a small number of accounts with large bullish positions on Trump are controlled by the same French citizen, market watchers said this whale's trading pattern indicates they are strategically buying shares rather than trying to pump the price.
