Researchers from Stanford College and the Singapore Administration College discovered that Polymarket’s 5-minute Bitcoin prediction market creates incentives for merchants to control spot costs earlier than and after settlement, permitting subtle contributors to revenue on the expense of retail merchants.
The examine checked out contracts by which merchants wager on whether or not the value of Bitcoin would finish above or beneath a predetermined stage after 5 minutes. Contracts are settled utilizing a Chainlink worth feed primarily based on the Bitcoin worth on the finish of every buying and selling window, so merchants have an incentive to affect the spot market proper earlier than settlement.
Analyzing buying and selling exercise earlier than and after Polymarket launched the contract in July 2024, researchers discovered a pointy enhance in Bitcoin spot market order stream simply earlier than settlement, adopted by a speedy worth reversal, according to settlement worth manipulation.
The examine estimates that this follow transferred roughly $1.28 million from odd merchants to operators through the pattern interval. The researchers mentioned that extending the contract interval from 5 to fifteen minutes largely eradicated the impact.
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The researchers argued that this end result doesn’t present that prediction markets are inherently susceptible to manipulation, however as a substitute that danger will be diminished by fee design. They pointed to different pricing strategies, equivalent to longer settlement intervals and time-weighted common costs, as potential options.
This discovery may prolong past cryptocurrencies. The paper notes that conventional exchanges equivalent to Nasdaq and CBOE have proposed occasion contracts tied to asset costs, and that contract design has turn into an more and more necessary consideration as prediction markets develop into regulated monetary markets.
World Cup drives prediction market progress
Prediction markets posted document buying and selling volumes in June because the growth of the 2026 FIFA World Cup elevated exercise throughout the sector. In response to DefiLlama knowledge, Kalsi processed round $9.4 billion in commerce quantity through the month, whereas Polymarket Worldwide processed round $4.3 billion.
The World Cup profitable markets on each platforms have since generated greater than $5.4 billion in mixed buying and selling quantity, with Polymarket dealing with about $4.25 billion and Karshi about $1.2 billion, in accordance with knowledge from each platforms on the time of writing.
World Cup winner bets on polymarket. sauce: Polymarket
Development on this sector has coincided with elevated authorized oversight. A number of U.S. states have filed challenges to corporations this yr, together with Calci and Polymarket, with the Commodity Futures Buying and selling Fee arguing that federally regulated occasion contracts fall below the “unique jurisdiction” of states, not state gaming legal guidelines.
The dispute is at the moment being heard in federal court docket, and authorized specialists say the conflicting appellate rulings may in the end result in the U.S. Supreme Court docket deciding whether or not states or the CFTC have major authority over prediction markets.
