Prediction markets are emerging as a brand new battleground within the crypto economy, with essentially the most informed traders competing with casual bettors for profits.
According to a report from market research firm 10x Research on Tuesday, most users behave more like sports bettors than disciplined traders. It says they trade “dopamine and narratives for discipline and edge.” It added: “Accuracy and profit are determined not by the masses, but by a small, informed elite who assess probability, hedge risk and extract premium from retail-driven longshots.”
Rising liquidity and retail participation are prompting skilled trading desks to extend their forecast market activity and reap the benefits of the spreads and “misinformation asymmetries” that arise from this market structure, in accordance with 10x.
Active Polymarket users, weekly, Bitcoin price on the left, year-to-date chart. Source: 10x Research
The report is a worrying sign for casual traders seeking to make easy money in prediction markets, as blockchain data suggests that the majority users are losing their initial investment.
According to blockchain data from Dune, only about 16.7% of wallets on Polymarket are making profits, while the remaining 83% have suffered losses.
Perfect odds fuel insider concerns
The impeccable track record of some prediction market accounts raises concerns about possible insider trading as certain users appear to win each time.
Polymarket user pony-pony boasts a 100% win rate with over $77,000 in realized profits by betting on events related to artificial intelligence development company OpenAI, prediction market data aggregator Polymarket Money said in a Monday post.
Another user, AlphaRaccoon, also sparked insider accusations after earning over $1 million in a single day by successfully winning 22 of 23 bets related to Google search trends.
Meanwhile, concerns in regards to the reliability of Polymarket data on third-party data dashboards are mounting after a Paradigm researcher discovered a bug that doubled the prediction market's trading volume, Cointelegraph reported earlier Tuesday.
The error overstates the first volume metrics used to measure forecast market activity, including notional volume, which counts the variety of contracts traded, and money flow volume, which measures the dollar value traded on the time of every trade, Paradigm researcher Storm wrote in a Tuesday X post.
However, the inflated volumes on data dashboards are resulting from errors in data interpretation and never wash trading, a fraudulent and illegal practice during which firms buy and trade the identical instrument to create a misunderstanding of growing market activity.
Paradigm's newly discovered error has been “validated” by several data dashboards, including AlliumLabs and DefiLlama, which at the moment are updating their Polymarket dashboards to eliminate the double counting error.
