Polymarket has replaced the single-price snapshot used to resolve short-dated crypto contracts with a time-weighted average price (TWAP) after research identified hundreds of accounts involved in settlement manipulation. The change follows complaints from traders and a study highlighting $8.2 million in potential profits from manipulated settlement windows, with 93% of losses in such windows falling on retail traders.
A study by Stanford University and Singapore Management University found 821 accounts linked to $8.2 million in potential profits through manipulated settlement windows. Researchers described the vulnerability as structural, noting that traders could influence financial prices by placing large orders on spot markets before settlement. Polymarket’s shift to TWAP aims to mitigate such risks, with the platform also introducing $1 million in liquidity rewards for August to support the transition.
Concerns about manipulation on Polymarket’s five-minute markets were raised in May by pseudonymous analyst Variance Lover and 郡主Christine, who noted increasing severity of the issue. The study identified unusually large orders on Binance in the final seconds before settlement, followed by rapid price reversals. Polymarket developer Josh Stevens had previously acknowledged the need for further analysis but did not provide immediate solutions.
Kalshi, a competitor in prediction markets, uses regulated benchmarks such as CF Benchmarks for resolution, according to its spokesperson. The platform conducts 150–250 investigations per quarter and refers 40–50 cases annually to the CFTC. However, claims about Kalshi’s immunity to manipulation remain disputed, with X user Tomdnc challenging assertions by Kalshi developer IcoBeast.eth.
The study did not confirm traders’ intent or prove that spot-market orders were linked to positions on Polymarket. Polymarket did not respond to a CoinDesk request for further details. The transition to TWAP reflects broader industry efforts to address systemic risks in crypto prediction markets, though debates over effectiveness and regulatory compliance persist.
Written by Oliver Grant
Markets Desk
