Data inflation? The real logic behind Polymarket's billion-dollar valuation is...

Recently, a research paper from Columbia University has put the “prediction market” in the spotlight into controversy.

The research team analyzed two years of historical data from the blockchain platform Polymarket and found that about 25% of the trading volume may belong to wash trading—where the same entity trades back and forth between its own accounts to create a false sense of activity. During certain hot event weeks, such as the U.S. elections or the sports finals, this ratio even soared to 60%.

Although the research has not yet been formally peer-reviewed, it is enough to tear open a corner of the hype surrounding prediction markets. Over the past six months, the heat in this sector has been almost “visibly apparent”: regulatory easing, backing from giants, capital frenzy, increased political involvement—prediction markets are becoming the most eye-catching “new financial species” of 2025.

From “marginal betting” to “new financial species”

The gameplay of prediction markets is not complicated: you can bet on events such as “Will Trump win the election?”, “Will the Federal Reserve lower interest rates?”, “Which country will the next Nobel Prize winner come from?”, and the platform forms a “market probability” based on the prices from both sides of the transaction, which is seen as a manifestation of “collective intelligence.”

In 2025, this method of “voting with money” will usher in a triple explosion opportunity:

Regulatory Easing In May of this year, the Commodity Futures Trading Commission (CFTC) withdrew its lawsuit against Kalshi, officially acknowledging that prediction contracts can be legally traded under a “specific framework.” In September, the CFTC issued another “No-Action Letter” to Polymarket, allowing it to reopen the U.S. market.

This means that the prediction market is moving from the “grey area” to “regulated visibility,” clearing the biggest obstacle for capital involvement.

Capital + Political Bets Immediately afterwards, funds flocked in:

In August, Polymarket received investment from 1789 Capital, which is partially owned by Donald Trump Jr.

Then, following the $2 billion investment by ICE, the parent company of the New York Stock Exchange, which raised Polymarket's valuation to $8 billion, and in October, the competitor Kalshi reached a valuation of $5 billion led by a16z and Sequoia Capital, the market enthusiasm continues to heat up dramatically.

According to the latest news from Bloomberg, Polymarket is seeking to raise a new round of financing at a higher valuation of $12 billion to $15 billion, while Kalshi's valuation is believed to have also surpassed $10 billion.

Behind this capital frenzy, the deep involvement of political forces cannot be ignored.

The “market-friendly” regulatory atmosphere created by the Trump administration paved the way for the explosion of prediction markets. The CFTC's shift in attitude and ICE's massive investment were both interpreted by the market as clear policy signals.

It is even more noteworthy that the Trump family's personal involvement: Donald Trump Jr. not only invested in Polymarket through 1789 Capital but also serves as an advisor to Kalshi.

ICE CEO Jeff Sprecher—who is also the husband of former U.S. Small Business Administration Administrator Kelly Loeffler—personally led the investment in Polymarket;

Trump's social platform Truth Social has also announced the launch of its own crypto prediction market “Truth Predict”.

The multiple forces of capital, policy, and family influence are driving the prediction market from marginal experimentation to the mainstream financial stage.

Tech Giants Propel Mainstream Adoption In October, Google announced that it will integrate real-time prediction market data from Polymarket and Kalshi into Google Finance search results. For example, when users search for “Who will be the president in 2028” or “Probability of Federal Reserve rate cuts,” a real-time data chart from the prediction market will appear below the results.

This means that the prediction market has been “embedded” into the largest information gateway in the world for the first time, becoming a part of the public information stream.

Google has not disclosed the specific cooperation model with the two companies, but for the market, this move is a “mainstreaming milestone”: the prediction market has transformed from a “gambling tool for crypto players” into a data product visible to ordinary users and quotable by the media.

The results are clear: in October, Polymarket's trading volume reached an all-time high, with a monthly trading volume exceeding $3 billion, and the number of users grew by 93.7% compared to September.

How serious is the “fake transaction” questioned by Columbia University?

Returning to the research data of the Columbia University thesis: Polymarket has about a quarter of its transactions exhibiting suspicious patterns between 2024 and 2025: frequent wash trading between accounts, extremely short time intervals between transactions, and almost no position settlements. These characteristics are very similar to the “wash trading” seen in the past NFT market.

The report author speculates that there are three main motivations for wash trading in prediction markets: ① To compete for future token airdrops or incentive points; ② To create market hype to attract new users; Some individual market makers stabilize the price range through “fake transactions.”

In other words, some people may repeatedly place “fake orders” in the market to boost their activity, earn points, and obtain future token rewards. This is not unfamiliar in the crypto space: from NFTs to DeFi, almost every wave of innovation has been accompanied by “data manipulation” behavior. However, even so, the “inflation” of prediction markets is not the highest in the industry. In comparison:

Unregulated Bitcoin exchanges had early “fake volume” exceeding 70% (from Bitwise's 2019 report).

In the NFT market, the proportion of washing trading during hot market periods is between 20% and 50%.

In comparison, Polymarket's average of 25% falls into the “moderately high” range. Additionally, with Kalshi's stronger compliance and strict KYC, the overall “authenticity” of the industry has far surpassed that of the early crypto space. Therefore, from an industry perspective, the “inflation” in prediction markets is not a catastrophic issue.

In addition, there have been different voices in the industry regarding the conclusions of the Columbia University study.

Former AWS engineer yassinelanda.eth raised several objections after reviewing the paper.

He believes that this study has methodological limitations — its conclusions are based on a single blockchain data model, while platforms like Polymarket actually have more complex signaling systems to identify real users and fairly distribute rewards. Additionally, the conclusions of the study are highly sensitive to the parameters set during analysis, and the severity of the issues revealed may not be stable.

He further pointed out a key feature of prediction markets: in this field, valuable signals are far more important than raw trading volume. Simple “left hand to right hand” wash trading cycles cannot generate real profit (PNL). Nowadays, advanced on-chain monitoring and recommendation systems have been able to effectively distinguish between informed real trading flows and market noise from market makers, bots, and self-trading, and reduce the weight of the latter in recommendations and rewards.

In his view, the core criterion for judging a prediction market should not be the “total trading volume,” which is a superficial data that can be easily manipulated, but rather:

• Prediction Accuracy: How accurate the results of the market are.
• Calibration: Whether the predicted probabilities match the actual occurrence frequencies.
• Bid-Ask Spread and Market Depth: How good is market liquidity, and how high are transaction costs?
• Slippage during news events: Whether the price can react quickly and smoothly to new information, rather than experiencing extreme fluctuations.

These indicators of market quality and information efficiency are the true core of measuring the value of prediction markets.

Gambling Trend Reemerges: When “Betting” Becomes the Mood of the Times

As observed by Lydia Grant, a sociologist at the University of Chicago: “Prediction markets, in a sense, perpetuate the American belief system—it allows people to still gain an illusory sense of control through the act of 'betting' amidst great uncertainty.”

This sentence accurately captures the social pulse of America today. In the face of high inflation, political division, and class stagnation, a “gambler's mentality” is quietly becoming a common emotional outlet. From sports betting to cryptocurrencies, and now to prediction markets, more and more Americans are beginning to entrust their fate to chance, releasing their anxiety in the betting odds.

When Wall Street giants also join in, this trend receives dual validation from both capital and institutions. The massive investments from organizations like ICE indicate that the mainstream financial industry is viewing prediction markets as the infrastructure for next-generation “event-driven” risk pricing, rather than just a marginal gambling game.

As pointed out by Rachel Lin, CEO of SynFutures: “The true value of prediction markets lies in their ability to quantify things that traditional finance cannot price, such as policy decisions, technological breakthroughs, and geopolitical risks.”

At the same time, Polymarket's launch of the POLY token and other initiatives has injected new fuel into ecological development. Research institution Delphi Digital believes that the future integration of multi-market data and AI analysis in prediction “terminals” is likely to open a new trading track similar to the meme coin craze.

Of course, challenges still exist. U.S. regulators are still debating the definition of “derivatives” versus “gambling,” and this lingering policy cloud remains the last hurdle for prediction markets to fully mainstream.

But the convergence of capital, technology, and social sentiment has become irreversible. People think they are predicting the future, but they are unaware that this nationwide betting frenzy has become the most authentic portrayal of this era.

Author: Bootly