Recently, a big news broke out in the blockchain industry. Two well-known analytical institutions, Chaos Labs and Inca Digital, discovered serious issues with fake trading in the prediction market Polymarket. This is definitely not groundless; I carefully reviewed their research reports and found that the situation is even worse than expected.

Let's first discuss the findings of Chaos Labs. They conducted an in-depth analysis of the popular market for the U.S. presidential election and found that one-third of the entire market's trading volume consisted of "wash trading" where trades are done between the same parties. In other words, out of every three trades, one is fake! Such a scale of fraud has long been under the watch of regulatory authorities in traditional financial markets.

Inca Digital also unearthed some shocking information. Their analyst team, through on-chain data analysis, found that a "significant proportion" of the trading volume on the platform is likely artificially inflated. How is this done? By using multiple accounts to trade with oneself, creating a false appearance of market activity. This method is not new in the cryptocurrency space, but it's quite excessive to do this in a prediction market.

The most ironic part? The odds data generated from these fake trades are reported as real market sentiment by many media outlets and social platforms. Just think about it; those "market predictions" we often see on Twitter could very well be illusions created by market makers. Isn't this a typical case of "the emperor's new clothes"?

I specifically checked Polymarket's operational data and found that since last year, their trading volume has indeed skyrocketed. But now it seems that the inflated figures may be much more than we imagined. As someone within the industry, I believe this situation has sounded an alarm for the entire prediction market sector—if we can't even guarantee the basic authenticity of trades, what future can we talk about for decentralized finance?