Galaxy: Observing the divergence between predicted market settlement and reality from Strategy's coin sales

Author: Will Owens, Galaxy Digital Research Analyst; Source: Galaxy Digital; Translation: Shaw, Golden Finance

Strategy Since 2022, the first time selling Bitcoin, this sale was extremely small, almost negligible. But the settlement dispute surrounding contracts related to a $301 million transaction on Polymarket is far from a minor issue.

A routine corporate announcement turned into the most significant practical test of the platform’s settlement mechanism since last year’s Zelensky attire incident (which involved $237 million in trades).

Event Details

Polymarket launched a cyclic rolling prediction target: "Did Strategy sell any amount of Bitcoin before X date?". This product consists of multiple contracts with specified cutoff points: If Strategy sold any BTC before 23:59 Eastern Time on the contract’s specified date, the contract settles as "Yes"; otherwise, it settles as "No". The platform rules specify: The primary settlement basis is the official disclosures from Strategy + on-chain data, with reports from authoritative media as secondary evidence.

Before this Monday, the contract’s settlement result had long been "No", as Michael Saylor’s company has always held rather than sold Bitcoin, so such contracts had never previously caused settlement disputes.

However, on June 1, Strategy filed an 8-K regulatory announcement revealing that the company sold 32 Bitcoin between May 26 and May 31. The sale price averaged $77,135 per BTC, totaling about $2.5 million in proceeds, which will be used for preferred stock dividends. This was the company’s first public disclosure of Bitcoin reduction since December 2022, breaking the market’s long-standing perception of "Michael Saylor only holds, never sells." But the sale volume was tiny: compared to the total Bitcoin holdings of 843,706 BTC, it accounts for only 0.0038%.

The settlement date of this sale clearly falls within the contract’s specified period (before May 31).

After the news broke, the "Yes" odds for the contract surged from 10% to about 80%. A trader bought 700k "Yes" contracts at roughly $0.76 each, claiming on X platform that this was a riskless arbitrage opportunity. (If the prediction is correct, each contract pays out 1 USD stablecoin; if wrong, it’s worth zero.)

But at 1 PM Eastern Time, Polymarket issued a supplementary statement. The platform stated: **There is no valid information from Strategy’s official announcement, on-chain data, or authoritative media reports confirming that Strategy sold Bitcoin within the contract’s valid period; evidence obtained after the deadline does not serve as a basis for settlement.

Within seconds of this announcement, the "Yes" contract price plummeted below $0.01.

Following Polymarket’s usual process, a trader deposited about $750 in margin to request the contract to settle as "No"; then another trader deposited an equal amount to dispute this settlement. The platform again requested settlement as "No," but this decision was rejected upon second appeal.

The contract then entered the final review process, which after 48 hours of review, resulted in a third and final ruling that the settlement is "No." This ruling is final.

As of 2:30 PM Eastern Time on June 3, the top ten long and short position holders combined held about 120 million contracts.

Polymarket "Strategy Did Not Sell Bitcoin Before May 31" Large Position Holders

Despite confirmed information that the Bitcoin transaction was completed within the contract window, the quote for the "No" outcome for the May 31 expiry contract still remained around $0.997 on Wednesday afternoon.

Original Rules vs. Platform’s Post-Hoc Clarification

The original contract settlement terms are based on actual events, clearly stating: As long as Strategy sold any amount of Bitcoin before the deadline, the contract settles as "Yes"; it does not require the sale to be publicly disclosed before the deadline.

This is the core contradiction in this dispute. The "bullish" (select "Yes") side argues: The rules explicitly prioritize Strategy’s official disclosures as the primary basis for judgment, and Strategy’s regulatory filings state that 32 BTC were sold between May 26 and May 31, within the contract’s valid period. The "bearish" (select "No") side contends: No public information before June 1 confirms the sale, and at contract expiry, there is no valid evidence for settlement.

In short, should settlement be based on the actual transaction date or the disclosure date? The original contract states the actual event date, but the platform’s subsequent clarification changed to rely on the disclosure verification time. Traders generally see this inconsistency as a post-hoc rule change. From an industry analysis perspective, we share this view (note: this does not constitute legal advice).

This is not an isolated case

Compared to the settlement outcome itself, the larger negative impact stems from the platform’s interpretative logic of the rules. Investors heavily long "Yes" contracts have publicly accused the platform of deliberately waiting until the 8-K report is released to facilitate insider trading, then changing the rules to settle as "No" and profit from the confusion. Notable prediction traders like Domer (who appeared on the "60 Minutes" Polymarket feature) and well-known Bitcoin cryptographer Adam Back have voiced doubts. The entire crypto community on Twitter has reached a consensus: when trading on Polymarket, besides predicting the event, you also have to bet that the platform won’t arbitrarily change the rules when you’re about to profit.

Polymarket’s settlement relies on UMA’s optimistic oracle mechanism. If disputes escalate, the issue is escalated to UMA’s data verification process, which involves token-weighted voting, with a voting window of 48 to 96 hours. Analyst Eric Conner calls this system a “flawed oracle system.” A May survey by The Wall Street Journal shows that in most disputed Polymarket cases, over half of UMA votes come from the top ten wallet holdings; at least 60% of active voters are linked to real trading accounts; and about one-fifth of dispute cases involve voters holding relevant positions in the contract. Since 2026, Polymarket has accumulated over 1,150 disputed cases, surpassing the total for 2025.

Interestingly, contracts expiring on June 30 and December 31 in the same series have no disputes and settle with about 99.9% probability as "Yes." The root cause of this controversy is simply that the contract’s deadline coincided with the company’s earnings disclosure date.

Our View

The Galaxy Research team has always believed prediction markets are excellent tools for information discovery and risk hedging. As announced Tuesday, our colleagues have established an off-platform prediction trading division. Especially during the 2024 U.S. presidential election, Polymarket has demonstrated the informational value of prediction markets, with precise results outpacing traditional polls and legacy media.

However, the current settlement dispute related to Strategy exposes that settlement credibility is the core foundation for prediction markets to fulfill their original purpose.

All traders who bought "Yes" contracts predicted the facts correctly, yet the platform declared they all lost — this is a fundamental failure of the mechanism.

Setting aside the underlying oracle rules, the objective facts are clear: Strategy sold Bitcoin before May 31. Multiple traders predicted correctly but were declared losers, which is a failure of the product’s mechanism.

The essence of prediction markets is to price the probability of future events. When the settlement result contradicts objective facts, the market no longer assesses the event itself but instead bets on how the platform might retroactively alter the rules. These two logics are entirely different; the latter has no market value.

Strategy’s regulatory filings confirm the sale occurred within the contract window. The "No" ruling was based solely on a hidden clause not written into the original contract: that the relevant facts must be publicly disclosed before the deadline. This additional requirement was only introduced after large funds entered the market, as a last-minute condition. From a rational perspective, this logic isn’t entirely unreasonable (if no verifiable public info exists at expiry, settlement is indeed impossible), but this condition was not part of the initial contract and cannot justify rule violations.

The change in stance stems from Polymarket’s supplementary statement, but it does not directly overturn the settlement. According to the platform’s own terms, Polymarket is a non-custodial platform; once UMA finalizes the result, the platform has no authority to revoke it (except in some cases like the 2024 Trump-related disputes, where refunds were issued). The supplementary statement is considered non-binding "additional reference information," and the final decision rests with UMA token holders.

In practice, this division of responsibilities is superficial: UMA voters tend to accept Polymarket’s supplementary statements as binding, and past rulings have never overturned platform clarifications. The final arbiter is the platform’s new rules and interpretations, not the market’s common understanding. Therefore, Polymarket effectively guides oracle decisions through new rules, with most oracles following the platform’s instructions. Coupled with scattered past rulings archived in community forums and Discord, the actual contract enforcement is entirely determined by the platform’s subsequent clarifications. This is a routine dispute resolution process, not an isolated case; many known disputes have involved traders publicly protesting unfairness.

Polymarket founder and CEO Shayne Coplan once claimed the platform is “the most accurate information pricing tool available,” but deviating from objective facts for settlement creates a fatal risk for the platform’s survival. Attempts to fix these flaws threaten the interests of existing stakeholders, making reforms difficult to implement.

Proposed solutions: Lock in settlement standards at contract launch, explicitly stating whether the outcome is based on the event date (event-based) or disclosure date (disclosure-based), and define evidence standards; once open, do not modify settlement rules via supplementary statements. Large disputed contracts should be separated from token-weighted voting, at least requiring voters with positions in the contract to abstain from rulings.

If the result can be verified through objective evidence like financial reports, on-chain transfers, or market data, then use deterministic settlement instead of voting. This approach is not hypothetical; all licensed, compliant settlement systems worldwide already implement similar rules. But this conflicts with UMA’s permissionless, token-governed design, which is the foundation of UMA’s low-cost, efficient operation, so the platform has yet to adopt such reforms.

This leads to Polymarket’s most challenging compliance issue: its current mechanism cannot meet the requirements of the U.S. Commodity Futures Trading Commission (CFTC). Polymarket has long moved beyond being a purely offshore crypto platform: in July last year, it acquired licensed exchange and clearinghouse QCX for $112 million, creating Polymarket US, an independent entity separate from the main chain; in November, it announced obtaining a CFTC license to operate as a regulated designated contract market (DCM). The platform claimed this license would enable it to re-enter the U.S. market under compliant conditions. Under the Commodity Exchange Act, DCMs must ensure fair settlement and avoid conflicts of interest, but the current token-voting oracle system (where voters can hold positions and participate in rulings) fails to meet these regulatory standards.

Running a regulated exchange in the U.S. while maintaining an oracle system that relies on token voting and discretionary rule changes is incompatible. The options are either to switch to a compliant centralized settlement model like Kalshi, or to accept that the current decentralized oracle approach conflicts with regulations.

Building a fair, compliant decentralized oracle is a long-term goal, but the current system clearly falls short.

Kalshi, a regulated platform under CFTC oversight, avoids these issues by using centralized, uniform settlement, never leaving dispute resolution to token holders’ votes.

Unclear settlement rules, as trading volume grows, increase risks: large wallet holdings can sway outcomes, and oracles claiming to "seek the truth" have long deviated from their original purpose.

The precedent set by this incident will have a far greater impact than the 32 Bitcoin involved.