Polymarket's Five-Minute Markets Open to Manipulation, Paper Finds

The researchers, based at Stanford University and Singapore Management University, say the gains came largely at the expense of retail participants.

Suspicious trades

The authors, David Dai, Ruizhe Jia and Shihao Yu, examined 16,000 five-minute contracts over the two months following Polymarket's launch of the product in February. 

They found repeated bursts of one-sided trading on Binance that temporarily moved Bitcoin's price just before bets settled, benefiting traders positioned in the same direction. 

The paper identifies 821 wallets that fit the pattern, roughly 1 in 300 that traded the contracts.

"These contracts have a structural vulnerability," Yu wrote in a LinkedIn post. "They settle on a price that traders can move by trading the underlying asset itself."

In contracts that were almost even shortly before settlement, order flow on Binance jumped 3.9x the normal level. In cycles where the market gave one side a 90-100% chance just before the close, a push against it reversed the outcome 34% of the time, compared with 1% in cycles that didn't record a push. 

The most suspicious activity clustered overnight and on weekends, when lower transaction volumes made prices easier to move, the researchers said.

Critical time

Polymarket told Bloomberg that it uses multiple independent pricing oracles. However, contracts resolved on the same side as Binance about 85% of the time. 

While the paper found the pattern suspicious, it noted that it could not prove intent and didn't link the Binance addresses to those with the winning bets. 

The company told Bloomberg that it plans to shift some markets to longer settlement windows.

The findings arrive as Cboe rolls out prediction products tied to stock indexes and Nasdaq seeks approval for similar contracts. If not resolved, the flaw could extend well beyond crypto.