TLDR
- Stanford and Singapore Management University researchers found Polymarket’s 5-minute Bitcoin contracts incentivize spot price manipulation before settlement
- About $1.28 million was transferred from retail traders to sophisticated traders during the study period
- Extending contract windows from 5 to 15 minutes largely eliminated the manipulation pattern
- Prediction markets hit record volumes in June, with Kalshi processing $9.4 billion and Polymarket $4.3 billion
- Legal battles are growing, with several US states challenging Kalshi and Polymarket, and the CFTC claiming exclusive jurisdiction
Researchers from Stanford University and Singapore Management University studied Polymarket’s five-minute Bitcoin prediction markets and found a clear manipulation problem. Because contracts settle using Chainlink price feeds based on Bitcoin’s price at the end of each five-minute window, traders with large positions have a reason to push the spot price in their favor right before settlement.
Study Finds Signs of Manipulation in Bitcoin Bets on World’s Largest Prediction Market
Researchers from Stanford University and Singapore Management University found signs of settlement manipulation in Polymarket’s popular five-minute Bitcoin prediction markets. After analyzing… pic.twitter.com/ZWYmqJk4ie
— Wu Blockchain (@WuBlockchain) July 16, 2026
The researchers compared trading activity before and after Polymarket launched these contracts in July 2024. They found sharp spikes in Bitcoin spot-market order flow just before each settlement, followed quickly by price reversals. This pattern, they said, is consistent with deliberate settlement-price manipulation.
The study estimated that around $1.28 million moved from ordinary retail traders to those exploiting the settlement structure during the period studied. That is a real cost to everyday participants.
The researchers were careful not to label prediction markets as fundamentally broken. They pointed the finger at contract design, not the concept itself.
Their proposed fix is straightforward. Extending the contract window from five minutes to 15 minutes largely removed the abnormal trading behavior in their analysis. They also suggested time-weighted average prices as an alternative settlement method, which would make it harder to move the final price with a burst of orders.
The implications go beyond crypto. Traditional exchanges like Nasdaq and Cboe have proposed event contracts tied to asset prices. As prediction markets expand into regulated financial markets, how contracts are designed and how prices are settled becomes a critical question.
Prediction Markets Are Still Growing Fast
Despite the research findings, prediction markets are seeing record activity. According to DefiLlama data, Kalshi processed roughly $9.4 billion in trading volume in June alone. Polymarket International handled about $4.3 billion over the same period.
A big driver of that volume was the expanded 2026 FIFA World Cup. Combined trading volume on World Cup winner markets topped $5.4 billion, with Polymarket accounting for about $4.25 billion and Kalshi about $1.2 billion.
That growth is attracting regulatory attention. Several US states have challenged both Kalshi and Polymarket this year. The Commodity Futures Trading Commission has argued that federally regulated event contracts fall under its exclusive jurisdiction, not state gambling laws.
Those disputes are now working through the federal court system. Legal observers say conflicting rulings at the appellate level could eventually push the question to the US Supreme Court, which would decide whether states or the CFTC hold primary authority over prediction markets.
The CFTC’s position, if upheld, would place prediction markets under federal oversight rather than a patchwork of state rules.
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