Prediction markets are emerging as a new arena within the crypto economy, where highly informed traders clash with casual retail bettors in pursuit of profits.
Many users are behaving more like sports gamblers than strategic traders, according to a Tuesday report from 10x Research, which noted that they are trading “dopamine and narrative for discipline and edge.” It further emphasized: “Profitability and accuracy are attributed not to the crowd, but to a small, well-informed elite who assess probability, manage exposure, and capitalize on retail-driven longshots.”
The increasing liquidity and involvement from retail traders is motivating professional trading desks to enhance their activities in prediction markets and take advantage of the spread and “misinformation asymmetry” inherent in this market structure, 10x added.
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The report serves as a warning for casual traders hoping to make quick gains on prediction markets, as blockchain data indicates that most participants lose their initial stake.
Only around 16.7% of wallets on Polymarket are profitable, while the remaining 83% have experienced losses, according to blockchain data provided by Dune.
Related: Prediction markets emerge as speculative ‘arbitrage arena’ for crypto traders
Concerns over Perfect Win Rates
The immaculate performance of some prediction market accounts has raised eyebrows regarding potential insider trading, as certain users seem to win consistently.
A Polymarket user identified as pony-pony claims a staggering 100% win rate with over $77,000 in realized profits by wagering on events pertaining to the artificial intelligence firm, OpenAI, according to prediction market data aggregator Polymarket Money in a Monday X post.
Another user, AlphaRaccoon, sparked insider allegations after amassing over $1 million in a single day by winning 22 out of 23 bets linked to Google search trends.
Additionally, concerns have emerged regarding the accuracy of Polymarket data on third-party dashboards, following a discovery by a Paradigm researcher of a bug that double-counts the trading volume of the prediction market, Cointelegraph reported earlier on Tuesday.
This bug is leading to inflated figures for primary volume metrics used to assess prediction market activity, including notional volume (the count of contracts traded) and cashflow volume (the dollar value traded during each transaction), according to Paradigm researcher Storm in a Tuesday X post.
However, the inflated volumes observed on data dashboards are attributed to interpretational errors, not wash trading—a misleading and illegal practice in which entities trade the same instrument to create a false impression of heightened market activity.
Paradigm’s recently identified bug has been “validated” by various data dashboards, including AlliumLabs and DefiLlama, which are now working to correct the double-counting issue in their Polymarket dashboards.
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