Polymarket users lost millions of dollars to ‘bot-like’ bettors over the past year, study finds

Abstract

A study analyzing 86 million bets on the crypto-based prediction market Polymarket between April 2023 and April 2024 reveals that arbitrageurs extracted nearly $40 million in risk-free profits. These participants, many exhibiting bot-like trading patterns, exploited market inefficiencies where the aggregate probability of all outcomes did not sum to 100%. The top three identified wallets alone profited $4.2 million from over 10,200 bets. While sports markets presented the most frequent arbitrage opportunities, the highest profits were generated in political prediction markets, particularly those related to the 2024 US presidential election. Most arbitrage trades yielded modest returns of 1-5%, but rare instances of extreme market inefficiency led to significantly larger profits. This research, focusing on guaranteed profit opportunities, suggests the broader scope of prediction market arbitrage is largely unexplored and is likely to expand as platforms gain popularity and traders develop more sophisticated strategies. – AI-generated abstract.