One analyst says prediction markets like Polymarket structurally favor data-rich insiders, leaving most retail traders exposed to losses, fake volumes and behavioral pitfalls.
Summary
- Analyst DANNY says prediction markets are now rewarding traders with real-time news feeds and data tools, turning most retail users into exit liquidity as volumes reach the billions.
- Case studies such as “Alpha Raccoon” using Google Trends and a Columbia study showing up to 25% of wash-traded Polymarket volume highlight the risks of deep intelligence and volume manipulation.
- The report urges users to carefully examine data sources, timing, suspicious volume spikes, wallet patterns and their own herd biases before trading a prediction contract.
A market analyst has warned that up to 99% of retail users in prediction markets are at risk of losing money due to structural advantages that favor insiders with access to real-time data, a recent analysis shows.
Analyst DANNY’s research, published through independent research channels, highlights growing concerns about information asymmetry and artificial volume signals on platforms such as Polymarket as weekly trading volumes reach billions of dollars.
According to the analysis, prediction markets have experienced a fundamental shift in dynamics as they have grown in size. While smaller markets historically allowed informed analysis to drive accurate forecasts, the expansion into weekly volumes of billions has allowed traders with early access to news sources and real-time data to dominate the results.
Prediction markets are up for debate
The central issue mentioned in the report is information asymmetry. Contract results in prediction markets are typically dependent on news announcements or official updates, allowing early access individuals to trade before the broader market receives the information.
The analysis cited the case of a trader identified as ‘Alpha Raccoon’, who reportedly made more than $1 million using Google’s search trend data. The analyst noted that the probability of accurately predicting such outcomes without early data access is low, suggesting that internal information may have been used.
According to the report, market volume poses an additional challenge for traders. High volume levels can give the impression that an outcome is certain, causing users to follow apparent trends. A 2024 study from Columbia University found that up to 60% of volume-based signals were misleading, driven by strategies designed to manipulate perception rather than reflect true market confidence, the analyst report said.
The analysis recommends that retail users exercise caution when participating in prediction markets. Traders are advised to carefully review the contract terms, especially the designated data sources that determine the outcomes. Understanding the timing and nature of the data can help avoid taking positions based on false assumptions, according to the report.
The analyst also recommends scrutinizing volume increases, noting that not all trading volume is organic and some may be the result of coordinated efforts to influence market sentiment. Observing trade timing patterns and portfolio movements can provide more reliable insights than aggregated volume figures, the analysis found.
Behavioral bias represents another risk factor mentioned in the report. The analyst noted that many traders follow trends without verifying the underlying reasoning, and advised users to verify the data independently and approach each trade as a strategic interaction with potentially better informed participants.
