How a five-second trick let traders drain millions from Polymarket
Reported by CoinDesk · AI-assisted summary by ChikoCorp AI News Desk
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Summary
Polymarket, a crypto prediction market platform, is replacing single-price snapshots with time-weighted average prices (TWAP) for settling short-dated crypto contracts after research and trader complaints revealed widespread settlement manipulation. A study of five-minute bitcoin contracts found that large last-second trades on Binance influenced prices before settlement, with retail traders bearing most losses. To address this, Polymarket will use TWAP windows delivered via Chainlink Data Streams, a system similar to that used by rival Kalshi.
Why it matters
The changes matter because the prior settlement mechanism allowed a small number of traders to manipulate contract outcomes at the expense of retail traders, undermining market integrity. By adopting TWAP and more sophisticated price data, Polymarket aims to reduce brief price distortions during settlement, protecting users and enhancing trust in its markets.
Key context
A study by researchers from Stanford University and Singapore Management University examined about two months of five-minute bitcoin contracts on Polymarket. They observed large Binance trades in the final seconds before contract settlement that appeared to shift prices before reversal. These actions correlated with $8.2 million in likely manipulated settlement profits for 821 accounts. Prior complaints by onchain analysts and Polymarket insiders noted increasing severity in manipulation, prompting the platform’s update. Kalshi, a regulated competitor, uses regulated price indexes and 60-second moving averages to make such manipulation harder and has an identity-verified user base that allows investigations.
Key numbers and entities
Polymarket is the platform making the changes. Researchers identified 821 accounts involved in likely manipulated settlements, with $8.2 million gained in those windows. Polymarket will add $1 million in liquidity rewards through August during the transition. The TWAP windows will be 30 seconds for five-minute markets and 60 seconds for 15-minute and four-hour markets. Competitor Kalshi conducts 150–250 investigations per quarter and has made 40–50 regulatory referrals so far this year.
What remains unclear
The study did not prove the intent of traders or confirm that the spot-market orders were placed by the same individuals holding Polymarket positions. Polymarket did not respond to requests for further comment about the changes or the manipulation research. The source does not flag additional open questions beyond these uncertainties.