Key Takeaways
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- Columbia University researchers found 25% of Polymarket’s trading volume over the past three years was due to wash trading.
- The study didn’t allege Polymarket’s involvement but cited crypto-based design features that enable the practice.
- Wash trades inflate market activity and distort perceived liquidity and sentiment.
- Researchers flagged 14% of 1.26 million wallets as exhibiting wash-trade patterns.
- Wash trading peaked at 60% of volume in Dec 2024, fell to 5% in May 2025, then rose to 20% in Oct 2025.
Study Findings
A Columbia University study concluded that a quarter of all trading on Polymarket—a leading blockchain-based prediction market—was artificially generated through wash trading.
The paper, published on SSRN, analyzed on-chain data and found that traders rapidly bought and sold the same contracts between related accounts to simulate volume.
While researchers did not accuse Polymarket of conducting or facilitating such activity, they pointed to aspects of its structure—no transaction fees, pseudonymous wallets, and stablecoin settlements—as factors that make wash trading feasible.
“Wash trading doesn’t add liquidity or information to the market,” said co-author Yash Kanoria of Columbia Business School. “It would seem valuable to distinguish authentic from inauthentic volume.”
Impact on Market Integrity
Polymarket’s inflated trading metrics could undermine its reputation as a crowd-sourced indicator of public sentiment.
Prediction markets are often promoted as barometers of collective wisdom, but fabricated trades skew real probabilities and misrepresent participation levels.
The findings may also affect perceptions of Polymarket’s market leadership. Although it has dominated the sector for most of the past year, rival Kalshi has recently captured more legitimate volume, driven by regulated sports betting products.
Possible Drivers of Wash Trading
The study suggests wash trading on Polymarket may be linked to token speculation. Traders might have been inflating activity to qualify for future token airdrops, a common incentive in crypto ecosystems.
Polymarket’s founder, Shayne Coplan, hinted in October that the company could issue its own token, intensifying user activity.
Co-author Allen Sirolly noted that “peaks in organic volume coincide with event news, while wash-trade spikes correlate with token rumors.”
Regulatory Context
Polymarket has faced past regulatory scrutiny. In 2022, it paid $1.4 million to settle with the CFTC for operating an unregistered exchange and agreed to block U.S. users.
Investigations by the CFTC and DOJ closed this year, and the firm plans to re-enter the U.S. via acquisition of a CFTC-regulated platform (QCX).
Wash trading is considered a form of market manipulation under U.S. law. Traditional exchanges employ surveillance tools to detect and penalize such activity, but decentralized crypto platforms remain largely self-policed.
Industry Implications
Polymarket’s findings echo long-standing issues in crypto trading. Earlier studies found up to 70% of trades on unregulated exchanges were wash transactions, inflating apparent liquidity.
The Columbia team’s research highlights a key challenge for on-chain prediction markets: balancing open access and transparency with controls against manipulation.
As the sector grows and institutional players like Intercontinental Exchange (ICE) invest, transparency around genuine trading volume will become central to its credibility.
