Polymarket, a prediction market, is facing some serious concerns about wash trading. This is a type of market manipulation where the same person acts as both the buyer and seller in a trade. It's illegal in traditional finance, and now it's being spotlighted in the crypto world.
A recent article from Fortune highlighted findings from two blockchain analytics firms. Chaos Labs found that around one-third of the trading volume on the presidential market likely involved wash trading. This trend appears across all markets on Polymarket. Inca Digital also noted that a significant chunk of the volume could be linked to potential wash trading.
Wash trading is banned in traditional finance because it creates a false impression of demand and pricing for assets.
The Fortune article suggested that these wash trades might not be about influencing the upcoming U.S. presidential election. Instead, it mentioned that Polymarket is considering launching its own token. In the crypto space, wash trading is often used to qualify for token giveaways, a practice known as "airdrop farming."
Prominent crypto investor Nic Carter shared on X (formerly Twitter) that airdrop farming is likely a more plausible reason for this activity than political motives. Currently, Polymarket doesn’t charge trading fees, which could discourage frequent buying and selling.
Flip Pidot, an experienced prediction market trader, expressed that without seeing the research from Chaos Labs and Inca, it’s tough to evaluate the claims made by Fortune. However, he took issue with another claim in the article. It described it as an “anomaly” that Polymarket counts each trade as $1 in volume, even when a trader pays just a cent for a “yes” share regarding Hillary Clinton’s chances of winning the presidential election.
Pidot clarified that in prediction markets, and futures markets in general, volume is usually reported in terms of notional value. This is what Polymarket is doing. If you buy a $1 payout position for $0.01, and someone else buys the opposite side for $0.99, that still counts as $1 of notional volume.
Fortune's claims about wash trading on Polymarket differ from a previous narrative that caught mainstream attention about a week ago. That earlier story suggested that a "whale" trader was trying to inflate Donald Trump's odds of winning the presidency on the platform. Many market experts found that claim dubious.
While Polymarket confirmed that a few accounts with large bullish positions on Trump are controlled by the same French national, market watchers noted that the trading patterns indicated strategic buying rather than an attempt to artificially raise the price.