Jia Lissa
Prediction markets, often lauded as advanced barometers of public sentiment and even "truth machines" surpassing traditional polling, are facing renewed scrutiny following revelations of unusual and potentially manipulative trading patterns on Polymarket’s offshore platform. While proponents highlight instances like Kalshi’s accurate forecast of the 2024 US presidential race, recent activity on Polymarket’s global election markets paints a more perplexing picture, with hundreds of millions of dollars in trading volume generated under highly suspicious circumstances, primarily involving long-shot candidates and seemingly self-referential transactions. This unprecedented trading activity, detailed by experts and forensic analysts, has ignited a debate over the integrity of these platforms, their susceptibility to manipulation, and the broader implications for the nascent prediction market industry. At the heart of the concern are markets related to elections in Ethiopia and Romania, where trading volumes surged to extraordinary levels, disproportionately favoring unlikely outcomes and persisting long after electoral results were definitively known. The anomalies suggest a calculated effort to artificially inflate trading metrics, potentially driven by speculative interests in future cryptocurrency token distributions.
The Ethiopian Election Market: A Case Study in Anomalous Trading
The most striking example of these unusual patterns emerged from the 2024 Ethiopian federal elections. Prime Minister Abiy Ahmed’s Prosperity Party secured a landslide victory, capturing 438 parliamentary seats and cementing his position for another five-year term, with his closest competitor managing a mere 13 seats. Conventionally, prediction market trading volume aligns with the probability of an outcome, with frontrunners attracting the lion’s share of activity as traders bet on likely winners. However, the Ethiopian market on Polymarket dramatically diverged from this norm.
Only a modest $173,000 was reportedly wagered on Abiy Ahmed’s clear path to victory. In stark contrast, an astonishing sum exceeding $41 million was traded on his chief of staff, Shimelis Abdisa, becoming the country’s next leader – an outcome with virtually no political basis or credible public support. The total trading volume for this single market surpassed $285 million, with the overwhelming majority of these funds directed towards candidates who ultimately lost. This disproportionate allocation of capital, favoring long-shot outcomes with such magnitude, immediately raised red flags among market observers and analysts.
Further compounding the mystery, forensic analysis conducted by Chris Park, a former Polymarket trader who now heads the prediction-market forensic analysis firm MSR Decode, revealed a critical detail: approximately $284 million of this massive volume originated from "pairs of accounts repeatedly buying and selling with each other." This pattern, where assets are continually exchanged between the same or closely linked entities without a genuine change in beneficial ownership, is a hallmark of market manipulation. Rajiv Sethi, a Barnard College economics professor and prominent researcher of prediction markets, succinctly labeled this phenomenon as "obviously some form of volume manipulation," indicating that the sheer scale and nature of these transactions suggest an intent beyond genuine price discovery or speculative betting.
"Zombie Markets": Trading on Resolved Outcomes
Adding another layer of anomaly, the timing of these trades was particularly peculiar. Polymarket’s rules for the Ethiopian market stipulated resolution in October, following the prime minister’s formal appointment and swearing-in. This meant the market remained active for several months after Ahmed’s victory was a foregone conclusion. For 123 days post-election, bursts of seemingly irrational trading persisted, prompting exasperated comments from genuine Polymarket users querying the market’s unresolved status with remarks like "THIS NOT RESOLVED?" and "fuckkkk." Sethi aptly terms such scenarios "zombie markets," where trading continues on events that have already concluded or are no longer viable, effectively allowing speculative activity on an outcome that has already materialized.
The Romanian 2024 election market presented an even more "dramatic" illustration of these anomalies, according to Sethi. The initial election was called off due to concerns about foreign interference, leading to a new race several months later. Rather than closing the original market, Polymarket kept it running concurrently with the new one. It was during this interim period that Sethi’s algorithm, specifically designed to detect potential wash trading, flagged nearly all activity in the older market as suspicious. His analysis indicated that "99.6 percent of volume in this market for certain weeks has been wash trading," an astonishing figure that points to systematic, artificial inflation of trading activity.
Deconstructing Wash Trading and Activity Farming
Wash trading is a deceptive and illicit practice where individuals or entities repeatedly buy and sell the same asset to themselves, or through a prearranged agreement, to create a false impression of high trading volume and liquidity. This artificial activity can mislead genuine traders into believing there is significant interest in an asset, potentially influencing prices or attracting more participants. Such practices are explicitly banned on regulated financial exchanges in the United States, including those overseen by the Commodity Futures Trading Commission (CFTC), and are also prohibited under Polymarket’s own terms of service, which clearly state that the integrity of their markets relies on preventing such manipulation. Previous research by Sethi and his colleagues has already identified evidence of widespread wash trading on Polymarket’s offshore platform.
While the specific identities of the traders involved in the Ethiopian and Romanian markets remain undisclosed, experts believe the most plausible explanation for the observed anomalies is "activity farming." This strategy involves artificially inflating one’s trading volumes in anticipation of future benefits. In the context of cryptocurrency and decentralized finance (DeFi) platforms, this often revolves around the prospect of "airdropped" tokens. An airdrop is a distribution of free cryptocurrency tokens to active users of a platform, often as a reward for early adoption or significant engagement, with the amount of tokens sometimes proportional to a user’s activity or holdings on the platform.
The motivation for such farming on Polymarket appears to stem from public statements made by the company. In 2025, Polymarket chief marketing officer Matthew Modabber alluded to the launch of a company token and a potential airdrop during a crypto-themed podcast, albeit without providing specific details. This unconfirmed but widely anticipated token allocation to higher-volume accounts could provide a powerful incentive for traders to engage in wash trading, even if it doesn’t generate direct profit from price movements. Andre Guettler, director of Ulm University’s Institute of Strategic Management and Finance, who researches prediction markets, characterizes these events as "textbook examples on how market participants farm a potential airdrop," highlighting a known phenomenon within the broader cryptocurrency industry where users engage in seemingly pointless transactions to qualify for future rewards.
MSR Decode’s analysis of the Ethiopian market further supports this theory, finding it highly improbable that the trading volume was the result of sophisticated algorithms seeking marginal profits. Their examination of over 38,000 "trade loops" – instances where individual wallets rapidly bought and sold to each other post-election – revealed that more than 98 percent resulted in neither side gaining nor losing money. The median holding period for purchased contracts before resale was a mere nine seconds, indicative of rapid, high-frequency, non-speculative trading aimed solely at generating volume rather than achieving a profitable position.
Polymarket’s Response and Corporate Trajectory
When confronted with inquiries about these suspicious markets, Shana Bautista, Polymarket’s head of global intelligence and investigations, stated to WIRED that the team "immediately flagged this activity, investigated, and blocked the accounts from trading." However, Polymarket declined to provide further clarification regarding why these accounts were permitted to accumulate such an exorbitant volume of trades – hundreds of millions of dollars – before any decisive action was taken. This lack of transparency regarding the duration and scale of the suspicious activity before intervention raises questions about the platform’s proactive monitoring capabilities and the effectiveness of its internal controls, particularly given its stated commitment to market integrity.
Polymarket operates in a dynamic, high-growth environment, having successfully positioned itself as a significant player in the prediction market space. The company recently secured a substantial funding round exceeding $1 billion, led by 1789 Capital, a venture capital firm with notable figures like Donald Trump Jr. as a partner. This investment reportedly values Polymarket at an estimated $21 billion, reflecting considerable investor confidence in its future. Furthermore, the company announced earlier this summer that its annualized revenue had surpassed $1 billion. A significant component of Polymarket’s public growth narrative and valuation is often tied to its trading volume, a metric frequently cited as an indicator of user activity and platform vibrancy. In this context, the artificial inflation of volume through activity farming could be seen as a method to bolster these key performance indicators, further complicating the assessment of the platform’s true organic growth and underlying user engagement.
Broader Industry Scrutiny and Regulatory Implications
These unusual trading patterns are not entirely unprecedented within the prediction market sphere. Earlier this year, Barron’s reported on significant activity in markets predicting the 2028 US presidential election, with a notable focus on unlikely and even ineligible candidates such as Elon Musk and New York City mayor Zohran Mamdani, both of whom are not constitutionally qualified to run for the US presidency due to being born outside the United States. While these specific instances may not directly involve wash trading, they underscore a broader propensity for unusual or non-substantive trading activity within the sector, raising questions about the motivations behind certain market participants.
Both Polymarket and its primary competitor, Kalshi, have faced public scrutiny over unusual market activity in recent months. Kalshi, a CFTC-regulated platform operating within US legal frameworks, recently addressed intense speculation on social media platform X concerning its perpetual futures market for cryptocurrency. The company published a blog post denying allegations of wash trading. While Professor Sethi agrees with Kalshi that those specific allegations were unfounded, he suggests the unusual volume there could be attributed to Kalshi’s market maker incentive programs, which create opportunities for traders to profit from small price discrepancies, rather than direct manipulation. This distinction highlights the complex nuances of market behavior and the varied motivations behind high-volume trading, differentiating between legitimate, albeit aggressive, trading strategies and outright manipulation.
The Commodity Futures Trading Commission (CFTC), the federal agency responsible for regulating prediction markets in the United States, declined to comment on whether it is currently investigating these specific election trades on Polymarket. Historically, the CFTC has investigated Polymarket for various suspected instances of market manipulation, including several cases of alleged insider trading previously reported by WIRED. While these past investigations focused more on illicit information use rather than wash trading, the agency has a clear track record of issuing substantial fines for wash trading in other regulated sectors, demonstrating its commitment to combating such practices. As a former CFTC employee noted, "It seems to me that the CFTC would want to know about weird activity in a very large market," implying that the scale and nature of the Polymarket anomalies could warrant significant regulatory attention, particularly given the platform’s stated US connections and significant financial backing.
The revelations surrounding Polymarket’s election markets raise critical questions about the reliability of prediction markets as genuine indicators of future events. If substantial portions of trading volume are artificially generated, their utility as "truth machines" or accurate barometers of public opinion is severely undermined. For a burgeoning industry striving for mainstream acceptance and regulatory clarity, instances of alleged manipulation pose a significant threat to credibility and user trust. The challenge for offshore platforms like Polymarket lies in balancing rapid growth and innovative financial products with robust integrity measures and transparent oversight, especially as they attract increasingly large capital and public attention. The ongoing saga underscores the complex interplay between technological innovation, speculative incentives, and the enduring need for market fairness and transparency to ensure these platforms fulfill their purported potential.
