Polymarket's 25% Phantom Volume Threatens Prediction Market Integrity

A new study by Columbia University researchers has found that up to 25% of trading activity on Polymarket, one of the leading blockchain-based prediction markets, is artificially inflated through practices such as wash trading. The analysis, conducted by academics including Yash Kanoria of Columbia Business School and Rajiv Sethi of Barnard College, highlights how repeated buying and selling of the same contracts by linked accounts has distorted volume metrics on the platform, according to a Bloomberg report.

The researchers developed a network-based algorithm to detect wash trading, identifying patterns where wallets frequently transacted with each other but rarely with external participants. Their findings, published on the open-access platform SSRN, estimate that wash trading accounted for an average of 25% of all trades over the past three years, with peaks reaching 60% of volume in December 2024.

The study notes that sports markets were particularly affected, with 45% of trading activity attributed to artificial activity, compared to 3% in crypto-related markets.

The study does not implicate Polymarket directly in the manipulation but points to structural features of the platform that enable such practices. These include the absence of transaction fees, which reduces the cost of repetitive trading, and the use of pseudonymous blockchain wallets, allowing users to create multiple accounts. Polymarket has not yet responded to the findings, stating it is reviewing the research.

The revelations come as Polymarket experiences a surge in activity, driven by its recent announcement of a POLY token airdrop and plans to re-enter the U.S. market. In October 2025, the platform reported over 477,000 active traders and $3 billion in trading volume, marking a 48% monthly increase in user base and doubling the previous month's volume, according to Crypto.News. However, the study suggests that a significant portion of this growth may be attributable to artificial activity rather than genuine market demand.

The findings raise concerns about the integrity of prediction markets as a "wisdom of the crowd" mechanism. Wash trading, which is illegal in traditional U.S. markets, can mislead investors by creating a false impression of liquidity and interest. The study's authors argue that distinguishing authentic from inauthentic volume is critical for understanding Polymarket's market strength and for maintaining trust in prediction markets as reliable indicators of public sentiment.

The issue of artificial trading is not unique to Polymarket. A 2022 study estimated that 70% of volume on unregulated crypto exchanges was inflated by wash trading. Polymarket's case is notable due to its rapid growth and the potential impact of its planned U.S. re-entry, which could bring it into closer regulatory scrutiny. The platform is set to resume operations in the U.S. under a CFTC-regulated exchange, QCX, following a 2022 settlement over unregistered trading.

Meanwhile, Polymarket's competitor Kalshi has gained traction, particularly in sports betting markets, though its non-blockchain-based structure limits transparency for researchers. The broader prediction market sector is booming, with Kalshi reporting $4.4 billion in October trading volume.