Crypto15 July, 20262 min read
Stanford Study Finds Polymarket Five-Minute Bitcoin Bets Enabled $1.28 Million Settlement Manipulation
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Five-minute Polymarket Bitcoin bets enable manipulation of the settlement price. Wealth moved from retail bettors to a small group of manipulators.
Five-minute Bitcoin bets
A study by David Dai, Ruizhe Jia, and Shihao Yu of Stanford and Singapore Management University found that Polymarket’s five-minute Bitcoin prediction markets became a mechanism for settlement manipulation, with the paper estimating the behavior transferred about $1.28 million from ordinary traders to manipulators during the sample period. The contracts, which bet on whether Bitcoin’s price would end above or below a predetermined level after five minutes, settled using Chainlink price feeds based on Bitcoin’s price at the end of each trading window.
Researchers said they analyzed trading activity before and after Polymarket introduced the contracts in July 2024 and found sharp increases in Bitcoin spot-market order flow just before settlement, followed by rapid price reversals consistent with settlement-price manipulation. The study also estimated that extending contract durations from five minutes to 15 minutes largely eliminated the effect, and it argued the results do not indicate prediction markets are inherently vulnerable because settlement design can reduce the risk.
Who profits, and how
Moneyweb described the pattern as a “transitory push to manipulate the spot price,” saying researchers found repeated bursts of one-sided trading on Binance that temporarily moved Bitcoin’s price in the final seconds before bets closed. The same report quoted Singapore Management University assistant professor Shihao Yu saying, “They settle on a price that traders can move by trading the underlying asset itself.”
Moneyweb also reported that the researchers examined about two months of five-minute Bitcoin bets on Polymarket and estimated the traders they identified as likely manipulators earned about $8.2 million over two months, largely at the expense of participants they classified as retail or other traders. It added that the paper found little evidence of similar trading patterns in 15-minute Bitcoin markets, arguing longer time horizons make it more difficult to influence the outcome.
Regulated markets at risk
The study’s implications extend beyond crypto, with Cointelegraph noting that traditional exchanges including Nasdaq and Cboe have proposed event contracts tied to asset prices, making contract design an increasingly important consideration as prediction markets expand into regulated financial markets. Cointelegraph also reported that the Commodity Futures Trading Commission has argued that federally regulated event contracts fall under its “exclusive jurisdiction” rather than state gambling laws, and that the dispute is moving through the federal courts.
In parallel, TradingView said the same Stanford and Singapore Management University work found that Polymarket’s five-minute Bitcoin prediction markets create incentives for traders to manipulate spot prices around settlement, allowing sophisticated participants to profit at the expense of retail traders. TradingView further stated that the paper notes the findings could extend beyond crypto, while also describing how longer settlement windows and alternative pricing methods such as time-weighted average prices are potential solutions.