Polymarket’s move to staff an in-house trading desk that will operate against platform users raises immediate market-integrity and regulatory concerns, according to multiple indicators cited in recent reporting. Polymarket hiring in-house team to trade against customers concentrates informational advantage at the platform level and arrives against a backdrop of documented artificial volume and prior enforcement action.
Conflict of interest, market-manipulation vectors, and regulatory liability
An internal trading desk sitting inside a market operator creates persistent informational asymmetries that can be exploited in several high-probability ways. A Columbia University study cited in reporting found that “wash trading accounted for up to 60% of volume” at the platform’s peak in December, falling to about 5% by May; sports markets were reported with as much as 45% fictitious activity and political markets about 17%. Wash trading is the practice of the same entity buying and selling to simulate activity rather than transfer economic risk. With privileged access to order flow and resolution mechanics, an operator-side desk can front-run retail orders, place strategic liquidity to distort prices, or coordinate trades that amplify artificial volume—all of which degrade the predictive signal users expect from a prediction market.
The regulatory history sharpens the legal risk of operating a proprietary trading unit. The platform previously paid a $1.4 million penalty to the U.S. Commodity Futures Trading Commission in 2022 and accepted a three-year prohibition on U.S. users for operating an unregistered derivatives venue. The company has pursued re-entry into the U.S. market, including a reported $112 million acquisition of a CFTC-licensed exchange, yet launching a desk competing with customers may invite renewed scrutiny from the same authorities whose mandate is to prevent market abuse and protect retail participants. Regulators are likely to evaluate whether operator trades constitute manipulative conduct or breach duties expected of a market intermediary.
Reputational, insider-trading and outcome-manipulation risks
Polymarket has faced allegations beyond volume inflation, including disputes over oracle governance in a large, contentious resolution tied to a reported $58 million bet on an outcome related to Ukraine. Past incidents have also included alleged insider activity—one case referenced a Google employee reportedly earning over $1 million by trading on advance data—illustrating how private or early access to external information can translate to outsized gains. Even absent legal violations, perception of platform self-dealing corrodes user trust and reduces participation, which in turn diminishes liquidity and the platform’s utility as a crowd-sourced information mechanism.
The decision to field an in-house trading team amplifies existing vulnerabilities in platform integrity, regulatory exposure, and reputational capital. For users and compliance teams, the immediate implication is elevated counterparty risk and a larger attack surface for market manipulation. Next verified milestone: publication of Polymarket’s operational or audit disclosures clarifying the desk’s mandate and the regulator response to the launch.