Stanford study: Bitcoin prediction markets can be easily manipulated within 5 minutes

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Deep Tide TechFlow message: On July 16, researchers from Stanford University and Singapore Management University found that Polymarket’s 5-minute Bitcoin prediction market can incentivize traders to manipulate spot prices before contract settlement, allowing professional participants to profit from retail traders.

The study shows that because the contracts use Chainlink price feeds and settle based on the Bitcoin price at the end of the trading window, traders have an incentive to immediately influence the spot market before settlement. Analysis of trading data after the July 2024 contract launch found that, before settlement, Bitcoin spot market order flow surged and prices quickly reversed; an estimated $1.28 million was transferred during this period from ordinary traders to manipulators. The researchers said extending the contract duration from 5 minutes to 15 minutes can basically eliminate this effect, and they suggested using alternatives such as a time-weighted average price to optimize the settlement design.

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