How a five-second trick let traders drain millions from Polymarket
Researchers have identified a structural vulnerability in Polymarket that allowed traders to manipulate crypto-based prediction markets for millions in profit. In response, the platform is updating its resolution rules and adding liquidity rewards to stabilize the market.
Why it matters
This highlights significant integrity risks in decentralized prediction markets and the potential for financial exploitation through high-frequency trading tactics.
The researchers had found that 821 accounts made $8.2 million in settlement windows they classified as likely manipulated, prompting criticism that Polymarket’s rules let a small number of traders profit at others’ expense.
“To protect market integrity in our crypto up/down markets, we're updating how these markets resolve,” Polymarket said in the X post detailing the changes . “To support liquidity through this transition, we're adding $1M in liquidity rewards across all impacted markets through the month of August.”
Five-minute markets will use a 30-second average, while 15-minute and four-hour markets will use a 60-second average, the platform explained. The data will be delivered through Chainlink Data Streams, it added.
“The vulnerability is structural,” the researchers from Stanford University and Singapore Management University wrote. “An asset-price contract settles on a financial price, and that price can be moved by trading the underlying market itself.”
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