Have users on Polymarket really traded $22.6 billion? Don’t bet on it.
New research shines a bright light on the staggering extent of wash trading on the blockchain-based prediction market Polymarket as the company prepares to re-enter the U.S. market after being banned by regulators in 2022
“We first noticed that there were a lot of wallets which generated high volume but had zero or close-to-zero returns, which prompted us to look more closely at what trades those wallets were making,” one of the authors, Allen Sirolly, told PredictionNews. “We then gradually uncovered a picture of how expansive this all was.”
Detailed in a paper titled “Network-Based Detection of Wash Trading,” Sirolly, Columbia Business School professors Yash Kanoria and Hongyao Ma, and Barnard College economist Rajiv Sethi claim that wash trading on Polymarket may have accounted for nearly 60 percent of its total monthly trading volume last December and an average of 25 percent over the past three years. Moreover, they flagged a whopping 14 percent of the 1.26 million wallets that have ever traded on the platform.
The researchers found evidence of massive coordinated efforts, including one cluster of roughly 1,000 wallets that generated $800 million of volume alone in sports markets. They also noted that a high fraction of volume was transacted between wallets created within an hour or a day of each other.
What is wash trading, anyway?
Wash trading is the practice of buying and selling securities—in this case, event contracts—without taking a net position. This is typically done by colluding wallets controlled by the same entity to artificially inflate market activity. The trades are executed simultaneously, with orders posted between the bid-ask spread to generate “fake” volume.
The defining characteristic of a wash trade is that it results in no beneficial change in ownership. The practice distorts volume metrics and creates false impressions of liquidity, misleading others about the supply and demand within an exchange or market.
The researchers developed a novel algorithm to automatically detect likely wash trades, analyzing approximately 70 million historical trades on the Polygon blockchain, where Polymarket operates.
Incentivizing bad behavior
So why engage in wash trading at all? It all comes down to incentives.
The paper suggests that traders are most likely wash trading to manufacture their own trading volume in anticipation of a token airdrop from Polymarket, which had long been rumored before Polymarket Chief Market Officer Matthew Modabber recently confirmed the plans.
By manipulating massive volume, traders may qualify for more tokens if the airdrop is proportional to historical trading activity.
Other factors include the absence of trading fees, which makes manipulative trading practices more viable, and the lack of Know-Your-Customer (KYC) protocols, “making it straightforward for a user to generate and trade via multiple wallet addresses anonymously.”
While Polymarket also subsidizes liquidity with rewards to traders who seed its order books, Sirolly noted that the flagged wash-trading wallets earned a negligible share of the platform’s liquidity rewards.
“The reason is that to wash trade, you need to place two orders that execute against each other instantaneously,” Sirolly said. “Liquidity reward formulas typically have a ‘time in the order book’ component, so you won’t be earning anything by wash trading.”
Volume rewards, on the other hand, a version of which has recently been launched on Kalshi, could create more incentives for wash trading.
“There are certainly some challenges, especially with volume rewards, but we think they are still possible to implement if designed well,” Sirolly said.
Many observers have suspected wash trading has been taking place on the platform, but until this paper, there was little concrete data on just how rampant the activity was.
perhaps the strongest and simplest signal of wash trading is the volume to OI ratio.
just logically, how is it possible that kalshi has 30% more OI than polymarket, but poly has ~270% more volume. like come on, let’s call a spade a spade.
again, not accusing poly of… pic.twitter.com/r68ISPTSrD
— Adhi Rajaprabhakaran (@eightyhi) September 11, 2025
Why wash trading on prediction markets matters
First and foremost, wash trading is prohibited by the Commodity Exchange Act and has been illegal in U.S. commodity markets since 1936.
Polymarket has operated without CFTC oversight, but in August it acquired QCX exchange and clearinghouse, along with its CFTC license, paving way for its return to the U.S. as a regulated Designated Contract Market (DCM), which will require it to adhere to the more stringent regulatory environment.
Legality aside, the paper says wash trading can have real economic effects by distorting market signals and disguising important metrics that reflect a platform’s growth and user engagement.
“The ability to detect wash trading is important for the long-term health and growth of the market,” the researchers write. “Crucially for a prediction market, high volume is often interpreted as evidence that the prediction implied by a contract’s price aggregates the wisdom of a larger crowd. Hence, trustworthy volume metrics allow participants to properly interpret the market consensus.”
The researcher’s methodology highlights that on-chain data, which provides a full historical trade record, can be used to perform the kind of deep forensic analysis that would be impossible on traditional, opaque exchanges. At the same time, operating outside of a regulatory framework only encourages manipulative trading practices.
In a sense, Polymarket’s underlying blockchain technology is a blessing and a curse.
“From a researcher’s perspective, the transparency is great, because we wouldn’t even be able to do this kind of analysis otherwise,” Sirolly explained.
The study emphasizes that Polymarket itself wasn’t directly orchestrating the manipulation, but the platform’s structure—zero transaction fees, pseudonymous crypto wallets, and unregulated operations—created ideal conditions for abuse.
Polymarket told Bloomberg on Friday that it is “reviewing the study and has no immediate comment.”
The company’s terms of service expressly prohibit market manipulation, and CEO Shayne Coplan has previously characterized the platform’s blockchain transparency as “a feature, not a bug.”
For Polymarket specifically, the regulated U.S. platform launching through QCX will incorporate structural safeguards, such as required KYC protocols, that are largely absent in its current infrastructure. The key question going forward, however, is whether the company will take steps to address wash trading on its on-chain platform where there are still incentives for manipulation.
