Profitable Bets on Polymarket Raise Concerns Over Insider Trading
Strategic Betting on Ceasefire
A recent surge of new accounts on the prediction market Polymarket made highly specific and timely wagers regarding a potential ceasefire between the US and Iran on April 7. These bets resulted in significant profits for the participants, despite escalating tensions and President Trump's alarming rhetoric just hours before the ceasefire was announced.
On the day of the ceasefire announcement, Trump had issued a dire warning on social media, suggesting that "a whole civilization will die tonight" if Iran did not comply with his demands regarding the Strait of Hormuz by his 8 pm ET deadline. An analysis of blockchain data from Polymarket, conducted using the crypto analytics platform Dune, revealed that over 50 accounts placed substantial "Yes" bets on the ceasefire before Trump's announcement at approximately 6:30 pm ET.
One account, created on the same day around 10 am ET, placed bets totaling about $72,000 at an average price of 8.8 cents. Each betting event's buy-in ranged from $0 to $1, indicating the perceived likelihood of the event occurring. This user later cashed out with a profit of $200,000. Another account, which joined the platform a day earlier, earned $125,500 from similar bets. Additionally, a wallet created just 12 minutes before Trump's announcement made $31,908 in bets at 33.7 cents, resulting in an estimated profit of $48,500.
The higher price for "Yes" bets at that time may have been influenced by Pakistan's late efforts to persuade Trump to extend his deadline. Some users might have anticipated that Trump would back down, given his history of making bold threats only to retreat, a behavior criticized as "Trump Always Chickens Out" or TACO.
While many users enjoyed substantial profits, others are left waiting for payouts, as Polymarket has classified the April 7 Iran-U.S. ceasefire contract as "disputed." This classification arises from ongoing restrictions imposed by Iran on ships in the Strait of Hormuz and continued missile attacks in the region, with resolution of the dispute potentially taking up to 48 hours.
Public blockchain data does not reveal the identities behind the new wallets, as Polymarket employs proxy smart contract wallets, allowing a single user to create multiple accounts. Only Polymarket possesses the internal data necessary to ascertain whether these accounts belong to new or existing users.
In response to these developments, Rep. Blake Moore, R-Utah, who has proposed legislation to regulate prediction markets, expressed skepticism about the integrity of these trades, suggesting that they likely involve insiders with access to privileged information. He emphasized the need for restrictions to prevent government or military officials from profiting from their positions.
The betting patterns observed in these newly created Polymarket accounts echo previous instances where large wagers were placed just before significant events, such as the capture of Venezuelan President Nicolás Maduro, leading to substantial profits. This trend has sparked concerns among the public and lawmakers regarding the potential misuse of insider information in prediction markets.
Both Kalshi and Polymarket, the two leading platforms in this sector, have acknowledged the necessity of expanding the definition of insider trading to encompass prediction markets. Todd Philips, a professor at Georgia State University, highlighted the importance of regulation in these markets, stating, "We can't have people trading with inside information and expect other traders to feel secure in these markets."