Recent Studies Suggest Polymarket Plagued by Predominant 'Market Manipulation'
Recent Studies Suggest Polymarket Plagued by Predominant 'Market Manipulation'
Recent studies suggest that Polymarket, the crypto-centered platform that enables users to wager substantial sums on political contests, might be involved in a specific sort of market manipulation: wash trading.
Wash trading, as defined by Investopedia, involves traders simultaneously purchasing and selling the same stock. Effectively, wash trading gives the impression of a trade occurring when, in reality, none has taken place. This can lead to the false enhancement of a stock's prominence or trading volume, making it seem more popular than it truly is. In the realm of conventional finance, wash trading is considered illegal; however, in the sphere of "uncensored" (read: unregulated) finance, theoretically, anything is permissible!
Fortune admits that Chaos Labs researchers discovered that wash trading accounted for around one-third of trading volume on Polymarket's presidential market, while Inca Digital identified that a substantial portion of the market's trade volume might be attributed to potential wash trading.
In essence, researchers are accusing the platform of permitting its presidential market's trading volume to be artificially inflated. While the claims are intriguing, they remain ambiguous. Neither Chaos Labs nor Inca Digital have publicly released their research findings in a written report, having only shared it with Fortune. As a result, it's somewhat challenging to ascertain whether they're onto something or not.
That said, they're not the only ones to cast doubt on the platform's conduct. Polymarket was recently compelled to investigate some of its largest bettors after Bloomberg questioned whether a small number of accounts, all of which were fervently pro-Trump, were managed by the same person or group. Polymarket eventually disclosed that four of its largest betting accounts were controlled by a single French national.
Gizmodo contacted Polymarket for a comment on the latest research, as well as the two research firms to request the complete reports.
Bets on the U.S. presidential election are Polymarket's most popular offering, and for months, the consensus on the site has been that Trump will reclaim the White House. Currently, Polymarket's page for the White House race indicates that 65% of users believe Trump will win the presidency. Polymarket has been extensively referenced in media coverage of the U.S. presidential election—which is ironic since the site does not quantify U.S. public opinion. Or, at least, it's not intended to. Americans have been prohibited from wagering with the platform since 2022, due to an agreement with the Commodity Futures Trading Commission.
However, Polymarket's barriers against American participation appear to be quite flimsy. Bloomberg has observed that the platform's "system for preventing US users can be bypassed using virtual private networks, and social media is teeming with instructions on how to do it."
The future of Polymarket's reputation in the tech world could be questioned due to these allegations of wash trading, as tech regulations may potentially view such practices as unacceptable. The increase in trading volume on Polymarket's presidential market, allegedly inflated through wash trading, has raised concerns about the platform's transparency and legitimacy in the tech sector.