Prediction Markets Hit $63.5B Amid Wash Trading, Security Risks

The prediction market landscape underwent a dramatic transformation in 2025. CertiK’s report details a staggering leap in annual trading volume from $15.8 billion in 2024 to approximately $63.5 billion. This growth, however, has not been evenly distributed. Liquidity has rapidly consolidated around a triumvirate of dominant platforms: Kalshi, Polymarket, and Opinion. The security firm cautions that this quadrupling of activity is not primarily driven by steady, organic user demand. Instead, it has been heavily propelled by platform incentive programs and event-driven trading spikes, raising fundamental questions about the sector’s sustainability once these subsidies inevitably fade.

The scale of artificial activity is substantial. CertiK cites academic research showing that wash trading on Polymarket rose sharply in 2024, peaking near 60% of the platform’s reported volume during periods when incentives were active. Traders engaged in circular, non-economic trades specifically to farm these rewards, artificially inflating liquidity metrics. For now, CertiK maintains a critical distinction: while volume reporting is distorted, the core price formation mechanism and forecasting accuracy of these markets have largely remained reliable. The manipulation has affected market appearance more than its fundamental predictive function, but the firm acknowledges data remains limited.

The central risk, as outlined by CertiK, is when artificially inflated activity begins to corrupt price discovery rather than just volume statistics. The security firm provided Decrypt with specific indicators that would signal this dangerous crossover. These include persistent price divergence for the same event across different platforms that arbitrage fails to close, probability movements driven by concentrated wallet clusters without corresponding news or data releases, and a systematic bias in how markets price outcomes relative to actual resolutions.

“If prediction markets remain ‘consistently off by 5-10 points in one direction’ and such a pattern ‘correlates with identifiable whale or wash trading activity’ that could be evidence that ‘fake volume is bleeding into price formation,'” CertiK stated. The firm cautioned that while it has not yet seen evidence of wash trading distorting prices at scale on major platforms, lower-liquidity markets are particularly vulnerable. As incentive programs attract more sophisticated participants, the potential for manipulation that does impact price accuracy increases, threatening the core utility of these markets.

Beyond market integrity, CertiK’s report highlights that the sector’s breakneck growth has outstripped the maturity of its security architecture. Platforms often employ hybrid Web2/Web3 designs, using familiar Web2 interfaces for easy user onboarding while leveraging blockchain for transparency and settlement. CertiK warns that combining these stacks “creates exposure to both attack surfaces simultaneously,” introducing complex vulnerabilities.

This risk was starkly illustrated in December 2025. Attackers exploited a flaw in the authentication flow of Magic Labs, a third-party login service used by Polymarket for email-based access. The vulnerability allowed them to bypass two-factor authentication and seize control of user accounts created through Magic’s email login. As CertiK noted, this incident proved that a failure in a peripheral authentication service can put user funds at grave risk even when the core smart contracts are secure. The firm advocates for a holistic security approach: “Addressing this requires treating the full stack as a single security surface, auditing and testing authentication, key management, and settlement together rather than in isolation.”

As the prediction market sector enters 2026, CertiK describes it at a crossroads. While infrastructure is functioning and U.S. federal policy is becoming clearer, unresolved questions around sustainability and fragmented oversight loom large. Platforms continue to tussle with regulators, and state-level restrictions are emerging as a potential force that could further fragment liquidity and pressure business models.

CertiK expects the current dominance of Kalshi, Polymarket, and Opinion to persist in the near term. However, the firm states that genuine, sustainable growth will hinge on a critical trifecta: whether platforms can retain users without reliance on financial incentives, successfully navigate a patchwork of state-level regulations, and adapt as jurisdictions worldwide weigh their own regulatory frameworks. The report concludes that while inflated activity currently poses a reputational and structural challenge, it only escalates to a systemic risk once it begins to distort the very prices that give prediction markets their purpose and value.