25% of Polymarket Volume Is Fake: Columbia Study Breakdown

A November 2025 Columbia University study dropped a bombshell on Polymarket: 25% of all trading volume over the past three years was artificial wash trading. At its peak, fake volume reached 60% of weekly activity. Sports markets were hit hardest at 45% wash trading, while election markets spiked to 95% during certain periods. For traders relying on volume signals to make decisions, this research fundamentally changes how you should interpret Polymarket data.

What the Columbia Study Found

Researchers at Columbia University analyzed three years of Polymarket blockchain data and identified systematic wash trading patterns. Here are the key findings:

The Numbers

• 25% lifetime volume: One quarter of all Polymarket trades were flagged as wash trading
• 60% peak weekly: During December 2024, fake volume hit 60% of weekly activity
• 45% sports markets: Sports betting had the highest sustained wash trading rate
• 95% election spike: Political markets reached 95% artificial volume in March 2025
• Billions affected: Of Polymarket's $35+ billion cumulative volume, approximately $8-9 billion may be fake

What is Wash Trading?

Wash trading occurs when a trader buys and sells the same asset between their own wallets, creating the illusion of market activity without genuine economic interest. On Polymarket, this typically involves:

• Creating multiple wallets funded from the same source
• Trading between these wallets to inflate volume metrics
• Making markets appear more liquid than they actually are
• Potentially qualifying for future token airdrops based on volume

Why Traders Were Wash Trading

1. Airdrop Farming

The primary motivation appears to be speculation about a future POLY token airdrop. Polymarket has announced plans for a token launch in 2026, and traders assumed volume would be a key metric for airdrop eligibility. By inflating their trading volume, wash traders position themselves for larger token allocations.

2. Liquidity Rewards

Polymarket's liquidity rewards program incentivizes market making. Some traders exploited this by wash trading to maximize reward payouts while taking minimal actual risk.

3. Market Manipulation

Artificial volume can mislead other traders into thinking a market has genuine interest or that a price move is backed by real conviction. This creates opportunities for manipulators to enter/exit positions at favorable prices.

How This Affects Your Trading

Volume Signals Are Unreliable

If you've been using volume as a signal for market conviction or smart money activity, this study suggests you need to recalibrate. Up to 25% of the volume you see may be meaningless noise. Key implications:

• Don't trust raw volume numbers: A "$10M volume" market may only have $7.5M in real trades
• Sports markets are worst: 45% fake volume means sports betting signals are especially noisy
• Election markets vary: While overall lower, they can spike to 95% fake during certain periods
• Focus on unique wallets: Track distinct traders, not just trade count

Whale Tracking Becomes More Important

When volume is unreliable, tracking specific whale wallets with verified track records becomes essential. Tools like PolyTrack help you focus on traders with proven profitability rather than raw volume metrics.

Liquidity May Be Thinner Than It Appears

If 25% of volume is fake, actual market depth is shallower than displayed. This means:

• Large orders may have more price impact than expected
• Slippage could be higher when exiting positions
• Markets that appear liquid might dry up quickly during volatility

How to Identify Wash Trading

While Columbia used sophisticated analysis, you can spot potential wash trading with these signals:

Red Flags

• Wallets funded from same source: Multiple "different" traders with identical funding origins
• Perfectly offsetting trades: Buy and sell orders that precisely cancel each other out
• Repetitive patterns: Same trade sizes executed at regular intervals
• No net position change: High volume but wallet balances stay roughly constant
• New wallets with immediate high volume: Fresh accounts trading aggressively from day one
• Trading during low-activity hours: Volume spikes when legitimate traders are inactive

Tools to Help

Use blockchain explorers like Polygonscan to trace wallet funding sources. If multiple high-volume wallets trace back to the same origin wallet, that's a strong indicator of wash trading. PolyTrack helps identify genuine whale activity by filtering for wallets with consistent profitability over time.

Polymarket's Response

Polymarket has acknowledged the study but hasn't taken public action to address wash trading. The platform's position has been:

• Volume metrics are "one of many" indicators of market health
• Blockchain transparency allows anyone to verify activity
• Market prices (not volume) are what matter for prediction accuracy
• Future token distribution may use more sophisticated criteria than raw volume

Critics argue this response is insufficient given the scale of the problem and its potential to mislead retail traders.

Implications for Polymarket's Accuracy Claims

Polymarket has marketed itself as "the most accurate prediction market mankind has ever seen." But this claim relies partly on volume as a proxy for collective wisdom. If 25% of that volume is fake:

• Price discovery may be less efficient than claimed
• The "wisdom of crowds" effect is diluted by artificial activity
• Competitors like Kalshi may have cleaner data despite lower total volume

A separate Vanderbilt study found Polymarket correctly predicted only 67% of outcomes, compared to Kalshi's 78% and PredictIt's 93%. Wash trading may be one factor contributing to lower accuracy.

What This Means Going Forward

For the POLY Token Airdrop

If Polymarket uses volume as an airdrop criterion, they'll need to filter wash trading activity. Traders who legitimately participated may receive larger allocations than wash traders once filtering is applied.

For Regulation

With Polymarket's recent CFTC approval for US operations, regulators may scrutinize wash trading activity. Traditional exchanges prohibit wash trading, and Polymarket may face pressure to implement similar rules.

For Your Strategy

Adapt your trading strategy to account for unreliable volume:

• Focus on price movements over volume
• Track specific whale wallets instead of aggregate metrics
• Be skeptical of "high volume" claims in sports markets especially
• Use multiple signals before making trading decisions
• Verify wallet legitimacy before following any trader

Key Takeaways

• Columbia found 25% of Polymarket volume is wash trading
• Sports markets hit 45%; election markets spiked to 95% at times
• Primary driver is airdrop farming for potential POLY token
• Volume signals are unreliable—focus on whale tracking instead
• Liquidity may be thinner than displayed metrics suggest
• Polymarket accuracy claims may be overstated due to noisy data