2小时前
· CoinTelegraph
Stanford study says 5-minute Bitcoin prediction markets enable settlement manipulation
Researchers found that Polymarket’s five-minute Bitcoin prediction markets create incentives to manipulate spot prices around contract settlement, proposing longer settlement windows as a potential fix.
Researchers at Stanford University and Singapore Management University found that Polymarket’s five-minute Bitcoin prediction markets create incentives for traders to manipulate spot prices around settlement, allowing sophisticated participants to profit at the expense of retail traders.
The <a href="https://arxiv.org/pdf/2606.31675" rel="nofollow noopener" target="_blank">>study</a> examined contracts in which traders bet on whether Bitcoin’s price would end above or below a predetermined level after five minutes. Because the contracts settle using Chainlink price feeds based on Bitcoin’s price at the end of each trading window, traders have an incentive to influence the spot market immediately before settlement.
Analyzing trading activity before and after Polymarket introduced the contracts in July 2024, the researchers found sharp increases in Bitcoin spot-market order flow just before settlement, followed by rapid price reversals, which were consistent with settlement-price manipulation.
The study estimated that the behavior transferred about $1.28 million from ordinary traders to manipulators during the sample period. The researchers said extending contract durations from five minutes to 15 minutes largely eliminated the effect.
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The researchers said the results do not indicate prediction markets are inherently vulnerable to manipulation, arguing instead that settlement design can reduce the risk. They pointed to longer settlement windows and alternative pricing methods, such as time-weighted average prices, as potential solutions.
The findings could extend beyond crypto. The paper notes that traditional exchanges, including Nasdaq and Cboe, have proposed event contracts tied to asset prices, making contract design an increasingly important consideration as prediction markets expand into regulated financial markets.
Prediction markets posted record trading volumes in June as the expanded <a href="https://cointelegraph.com/news/world-cup-drives-prediction-markets-to-record-june-trading-volumes" rel="nofollow" target="_blank">2026 FIFA World Cup fueled activity</a> across the sector. According to DefiLlama data, Kalshi processed about $9.4 billion in trading volume during the month, while Polymarket International handled roughly $4.3 billion.
The platforms’ World Cup winner markets have since generated more than $5.4 billion in combined trading volume, with Polymarket processing about $4.25 billion and <a href="https://kalshi.com/markets/k