Polymarket is replacing single-price snapshots with time-weighted average prices in its short-dated crypto markets after research and trader complaints highlighted widespread settlement manipulation.

A study of five-minute bitcoin contracts found patterns of large last-second Binance trades that appeared to move prices before settlement, with most losses in likely manipulated windows borne by retail traders.

The new system, which uses Chainlink Data Streams and short TWAP windows, mirrors safeguards used by rival platform Kalshi, which relies on regulated price indexes and moving averages to make brief price distortions harder and more expensive. The update underscores a broader challenge for on-chain prediction markets: because they settle against off-chain financial prices, their integrity depends on how those prices are sourced and reported.

Polymarket said it has replaced the single-price snapshot used to resolve short-dated crypto contracts with a time-weighted average price, or TWAP, after months of trader complaints and research identifying hundreds of accounts whose activity was consistent with settlement manipulation. TWAP is a widely used mechanism in both traditional and decentralized finance for smoothing short-term price spikes.

Researchers found that 821 accounts made $8.2 million in settlement windows they classified as likely manipulated, prompting criticism that Polymarket’s rules allowed a small number of traders to profit at others’ expense.

“To protect market integrity in our crypto up/down markets, we're updating how these markets resolve,” Polymarket said in an 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.”

The platform said five-minute markets will use a 30-second average, while 15-minute and four-hour markets will use a 60-second average. It added that the data will be delivered through Chainlink Data Streams.

“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.”

The authors of the study examined roughly two months of five-minute bitcoin contracts. They found unusually large orders on Binance in the final seconds before settlement, followed by rapid reversals in bitcoin prices.

The paper did not prove traders’ intent or directly establish that the spot-market orders were placed by the same people holding positions on Polymarket. But it found that, excluding market makers, 93% of the losses in windows classified as manipulated fell on retail traders.

“A bet the market treated as near-certain was overturned one time in three,” the authors wrote.

Polymarket did not respond to a CoinDesk email requesting more information.

Prediction market concerns

Before the July-dated study, Variance Lover, a pseudonymous onchain analyst, raised similar concerns, including in a detailed post dated May 21.

“By now, most people are aware that market manipulation has become a major problem on Polymarket’s 5-minute crypto markets. The mechanism is simple: accumulate a large position on Polymarket, then move the price on Binance during the settlement window to force the market to resolve in your favor.”

An Axis Robotics contributor who goes by 郡主Christine on X said on May 11 that manipulation in Polymarket’s five-minute bitcoin market was becoming more severe, citing “precise reversals in the last few seconds.”

Responding to the post, Polymarket developer Josh Stevens said, “we are looking into this a bit deeper - don’t worry.”

Concerns about resolution vulnerabilities are not exclusive to Polymarket. Kalshi developer IcoBeast.eth said, “this problem doesn't exist on Kalshi fwiw,” in response to a post on X, to which Tomdnc replied: “it literally does happen on Kalshi. I have seen with my own eyes.”

A Kalshi spokesperson told CoinDesk that the platform resolves its markets using a regulated CF Benchmarks price index and can more easily investigate suspicious activity because all of its traders are identity-verified.

The spokesperson acknowledged that offshore markets can affect prices, but said Kalshi’s 60-second moving average, based on regulated exchanges, makes brief attempts to move a price “significantly harder and more expensive” than on platforms that use instant snapshots. Kalshi added that arbitrageurs quickly correct artificial moves.

Kalshi said it has conducted 150 to 250 material investigations per quarter and has made about 40 to 50 referrals to the Commodity Futures Trading Commission so far this year. Those are company-wide figures and are not limited to its short-dated crypto markets. The different approaches reflect a wider divide between regulated, identity-verified platforms and pseudonymous on-chain markets, where enforcement relies more on mechanism design than on user-level policing.