Polymarket faces backlash after $7 million market manipulation scandal

Polymarket, a prediction market platform, is facing trouble after the most severe manipulation attack in its history.

A prediction market with a betting volume of over 7 million USD has produced erroneous results, causing users to incur significant losses.

Inside the 7 Million USD Market Manipulation of Polymarket: What Went Wrong?

The latest debate related to the market: "Did Ukraine agree to a mineral deal with Trump before April?" This prediction market is expected to operate from February 2 to March 31, 2025.

It will be resolved as "Yes" if the United States and Ukraine reach an agreement regarding Ukraine's rare earth elements before the set deadline.

The rules on the Polymarket platform clearly state that the resolution will be based on "official information from the governments of the United States and Ukraine." However, despite the lack of official confirmation, the market was still resolved as "Yes," leading to widespread allegations of manipulation.

"Polymarket has scammed users once again," a user wrote on X.

This person also noted that, in the past, two markets with similar conditions were classified as "No." Notably, they had much smaller betting volumes, at 91,860 USD and 360,976 USD, respectively. In contrast, the manipulated market had a betting volume exceeding 7 million USD.

This user claims that a group of influential users known as UMA whales manipulated the results. He also revealed that one whale used multiple accounts to vote with a large amount, totaling 5 million tokens, accounting for 25% of the total votes.

As a result, this individual has concentrated a large portion of voting power in their hands, skewing the results in the direction of "Yes."

Polymarket's response has not allayed users' concerns. The team made the announcement on their official Discord server, acknowledging the situation. However, it said it could not refund affected users because the situation was not a market failure.

"This is an unprecedented situation, and we have been in the war room all day internally and with the UMA team to ensure this does not happen again. This is not a part of the future we want to build: we will build systems, monitoring, and more to ensure this does not happen again," the statement said.

Is Polymarket Fraudulent? A History of Allegations from Insiders

Meanwhile, this is not the first time Polymarket has been accused of manipulation. A series of detailed posts by a user on X, Folke Hermansen, has shed light on many similar cases.

"Polymarket is revealing itself to be a completely fraudulent platform. Insiders write the rules, place bets, and coordinate with verifiers to manipulate the prediction market and defraud their customers out of millions of USD every day," he posted.

Hermansen revealed that, in early March, the manipulators settled the market "Gold lost from Fort Knox" as "No," stealing 3.5 million USD. Furthermore, in another market related to tariffs, he alleged that the dispute button had disappeared for about 2 hours for users to challenge the results. This allowed insiders to push the market to a "No" outcome.

Another example he gave was the market "Did Trump say the word China at his crypto summit?" Polymarket provided a clarification of the rules after Trump mentioned China, stating the opposite that it would not count and resolving the market as "No."

Hermansen explained that the manipulation of Polymarket's markets occurs due to a combination of factors related to UMA's dispute resolution system and the influence of insiders.

He added that UMA's governance votes are very centralized, with only two whales controlling more than half of the voting power. Furthermore, one individual holds up to 7.5 million out of 20 million UMA tokens staked.

Hermansen emphasized that these whales are also active participants on Polymarket, placing large bets on outcomes.

"UMA, theoretically, is a neutral third-party blockchain protocol that encourages the pursuit of truth. In practice, it encourages a focus on what others are voting on," he said.

According to him, the UMA system encourages voters to follow the majority to avoid losing the tokens they have staked. Therefore, the actions of large holders drive voting rather than seeking independent truth.

He also detailed that to propose or dispute a market outcome on Polymarket, users must place a collateral amount, usually 750 USDC. Those with large holdings may be able to bet large amounts and place collateral. Meanwhile, the fear of losing their bet makes others reluctant to challenge them.

As a result, most disputes in UMA end with decisions that are almost unanimous, often at 95% or higher.

"It is an open secret that UMA whales can arbitrarily decide how the prediction market is settled," Hermansen stated.

He also emphasized that the design of the system anonymizes voting and disputes. As a result, this makes it difficult to trace who is responsible for wrong decisions, facilitating manipulation from within.

All information available on our website is published in good faith and is intended for general informational purposes only. Any actions that readers take based on the information found on our website should be reassessed, and they bear full risk from their own decisions.