Prediction markets, often lauded as sophisticated barometers of public sentiment and even "truth machines," are facing scrutiny over increasingly perplexing trading patterns. While platforms like Kalshi have demonstrated an impressive ability to forecast events, such as the 2024 US presidential race, their trading activity can also reveal a more opaque and potentially manipulative side. Recent investigations into Polymarket’s offshore platform have uncovered significant anomalies, particularly in global election markets, raising questions about market integrity and the motivations behind such transactions.
Millions Traded on Long-Shot Candidates: The Ethiopian Election Anomaly
A stark example of this perplexing trend emerged from two global election markets on Polymarket, which collectively generated over $600 million in trading volume. This figure far surpasses the typical activity seen in most political markets. While a substantial portion of this volume was concentrated on candidates with little to no chance of winning, the Ethiopian federal elections this summer provided a particularly striking case study.
Prime Minister Abiy Ahmed’s Prosperity Party secured a decisive victory, winning 438 out of 438 parliamentary seats and paving the way for his continued leadership. His closest competitor garnered a mere 13 seats. Conventionally, trading volume on prediction markets correlates with the perceived odds of an outcome; frontrunners naturally attract more attention and capital. However, in the Ethiopian market, this pattern was dramatically inverted. A mere $173,000 was wagered on Ahmed’s victory, while over $41 million was traded on his chief of staff, Shimelis Abdisa, becoming the next leader – a candidate who ultimately did not win. The total volume traded in this market exceeded $285 million, with the vast majority of it concentrated on losing candidates.
The Fingerprints of Manipulation: Wash Trading and Activity Farming
Adding another layer of suspicion to the Ethiopian market, former Polymarket trader Chris Park, now heading the forensic analysis firm MSR Decode, noted that "nearly all of it—about $284 million—came from pairs of accounts repeatedly buying and selling with each other." This observation points towards a potential form of market manipulation.
Rajiv Sethi, an economics professor at Barnard College specializing in prediction markets, describes such activity as "obviously some form of volume manipulation." He further elaborates on the phenomenon of "zombie markets," where trading continues on events that have already transpired or are no longer relevant, as was the case with the Ethiopian market which remained open for 123 days after Ahmed’s victory was a foregone conclusion, due to its resolution being tied to a formal appointment.
The most concerning explanation for these anomalies is wash trading, a practice where accounts repeatedly buy and sell an asset to create the illusion of high trading volume. This artificially inflates activity without any genuine change in ownership or economic interest. Wash trading is explicitly prohibited by Polymarket’s terms of service and is illegal on regulated financial exchanges in the United States. An earlier study by Sethi and his colleagues had already identified widespread evidence of wash trading on Polymarket’s offshore platform.
However, Sethi cautions that "what appears to be wash trading isn’t always wash trading." He introduces another plausible explanation: activity farming. This involves participants artificially inflating their trading volumes with the expectation of future benefits, such as a cryptocurrency token airdrop.
The Allure of Airdrops: A Potential Motivator for Inflated Volume
The cryptocurrency industry has a history of participants engaging in activity farming to qualify for token distributions. Polymarket’s Chief Marketing Officer, Matthew Modabber, indicated in 2025 that the platform intended to launch a cryptocurrency token, a statement that could have incentivized traders to boost their activity. Sethi finds it plausible that traders might be motivated by potential "token allocation" to accounts with higher trading volumes.
MSR Decode’s analysis of the Ethiopian election market supports this hypothesis. The firm found that over 98% of "trade loops" – instances where individual wallets bought and sold from each other in rapid succession after the election – resulted in no financial gain or loss for either party. The median holding time for these contracts was a mere nine seconds. Such patterns are highly unlikely to be the result of sophisticated traders seeking genuine profit, but rather a clear indication of artificial volume generation.
Romania’s "Zombie Market" and Recurring Anomalies
The Romanian election market on Polymarket presented an even more egregious example of market irregularities. The initial election was canceled due to concerns about foreign interference. A subsequent race was held months later, but Polymarket kept the original market open alongside the new one. During this period, Sethi’s algorithm flagged nearly all the volume in the older market as suspicious, estimating "99.6 percent of volume in this market for certain weeks has been wash trading."
These "zombie markets," where trading on outdated or resolved events continues, create fertile ground for manipulation. Users on Polymarket expressed their confusion and frustration with comments like "THIS NOT RESOLVED?" and "fuckkkk," highlighting the platform’s apparent inability to effectively manage or close markets in a timely manner.
Broader Patterns of Suspicious Activity
The anomalies on Polymarket are not isolated incidents. Earlier in 2026, Barron’s reported on significant trading activity in Polymarket’s 2028 US presidential election market, centered on ineligible candidates like Elon Musk and Zohran Mamdani. This suggests a broader trend of users engaging with markets in ways that deviate from genuine predictive intent.
Both Polymarket and its competitor, Kalshi, have faced public scrutiny for unusual market activity. Kalshi, in particular, was the subject of allegations of wash trading on its newly launched cryptocurrency perpetual futures market. While Kalshi published a denial, Sethi, while agreeing with Kalshi’s assertion that the specific allegations were unfounded in that instance, argued that Kalshi’s unique incentive structures for market makers could have created opportunities for traders to profit from small price discrepancies, leading to unusual volume without explicit wash trading.
Regulatory Oversight and the Future of Prediction Markets
The Commodity Futures Trading Commission (CFTC), the U.S. regulator for prediction markets, has declined to comment on whether it is investigating the specific election trades in question. The CFTC has a history of investigating market manipulation on Polymarket, though past cases have often focused on insider trading rather than wash trading. However, the agency has previously imposed substantial fines for wash trading in other sectors, suggesting a willingness to act when such practices are identified. A former CFTC employee commented that "It seems to me that the CFTC would want to know about weird activity in a very large market," underscoring the potential for regulatory intervention.
Polymarket’s rapid growth, evidenced by its recent $1 billion funding round led by 1789 Capital and a valuation of an estimated $21 billion, along with its reported annualized revenue of over $1 billion, places it under increased public and regulatory scrutiny. The company’s emphasis on trading volume as a key metric for user activity, while standard for exchange platforms, can inadvertently incentivize the very behaviors now under examination.
The integrity of prediction markets hinges on trust and transparency. As these platforms become more sophisticated and attract significant capital, the potential for manipulation, whether through wash trading or activity farming, poses a serious threat to their credibility. The ongoing scrutiny of Polymarket’s operations highlights the critical need for robust oversight and proactive measures to ensure that these markets serve their intended purpose as genuine indicators of future outcomes, rather than as arenas for artificial inflation and opaque speculation. The implications extend beyond the financial realm, impacting the very notion of prediction markets as reliable sources of insight into public opinion and future events.
