Researchers from Stanford University and Singapore Management University analyzed 16,000 five-minute Bitcoin contracts on Polymarket during the two months following their launch in February. They found that bursts of trading on Binance in the final seconds before settlement pushed Bitcoin’s price in a direction that favored certain positions. According to the study, traders the researchers identified as manipulators earned about $8.2 M, largely at the expense of retail traders.
The scheme relies on a structural weakness in these types of prediction markets.
“They settle based on a price that traders can influence simply by trading the underlying asset,” explained the study’s co-author, Shihao Yu.
How the Scheme Works
In the final seconds before settlement, Binance saw bursts of one-sided trading that briefly pushed Bitcoin’s price in the desired direction. When a contract’s outcome was extremely close, order flow jumped to 3.9 times its normal level. These unusual trading windows mostly occurred at night and on weekends, when thinner liquidity makes it possible to move the market with relatively modest trading volumes.
Polymarket settles its contracts using multiple oracles, but in 85% of cases, the final outcome matched Binance’s price direction. Researchers found almost no similar patterns in 15-minute markets, where the longer settlement window makes it much harder to influence the result.
The authors do not claim to have direct proof. The paper does not establish a link between Binance trades and Polymarket wallets, nor does it prove intent. Elton Shehdula, Head of Research at Allium, said the pattern appears to be genuine, while the question of whether the Binance traders were connected to the winning Polymarket wallets remains unanswered.
Platforms Respond
Polymarket said it aggregates data from several independent oracles and plans to transition some of its markets within the next year to settlements based on prices averaged over a longer period rather than a single point in time. Binance said it monitors order flow and uses anti-manipulation measures but is not responsible for how third-party oracles are configured.