[vcf]

We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are highly concentrated: the top 1% of users capture 76.5% of profits. Successful traders provide liquidity using limit orders that resolve favorably relative to realized outcomes while unsuccessful traders take liquidity using market orders. Monthly performance is weakly persistent, however, this may represent sample selection rather than skill. A detailed analysis of the trading behavior of the most successful accounts suggests that "insider'' trading is unlikely to explain the performance of the largest winners.

Full dataset available at https://huggingface.co/datasets/vgregoire/polymarket-users

[redox99]

The spreads on most markets always seemed like a hint that polymarket transferred wealth from the impatient that don't really understand how it works, to those that play mostly as patient market makers with just an educated guess.

The problem is that volume is generally too low to make significant money.

[superfrank]

I'm not saying this as an argument for or against prediction markets, but that's essentially what the vig is at traditional sportsbooks.

Someone calculates what they think the odds of an outcome happening are and then they allow people to take positions on either side at worse odds than what they think the real odds are. As long as their prediction is correct, over time they make money. It's why putting $1 on a 50/50 bet on a sportsbook will usually only pay out around $1.91 instead of $2 if you win.

[Onavo]

Isn't that just a normal market maker?

[hammock]

Books pay handicappers as well to make the guesses so that cuts into the vig

[chmod775]

The only time I'd trade on that platform is when I have information others don't. I assume that is also true for those 1% farming suckers.

[graemep]

That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.

[vcf]

Yes. It's not only that, as we also find very successful traders who take directional bets on elections and sports. But among the most successful traders, a large fraction are acting as market makers. Note that acting like one is not enough. We also find many traders acting as market makers among the least successful, yet they don't lose as much as the top winners do.

[zero_bias]

Actually it’s pretty explicitly stated, polymarket even have special docs section, "market maker guide"

[wutwutwat]

insider trading on events probably wouldn't show any trends, right? These are point in time events (they call them markets), but they are finite and short lived. An insider would be a one and done thing, so it would be pretty hard to spot them or trend any sort of month over month insider scheming imo.

Also...

> We study trading gains and losses on Polymarket, the largest prediction market

This is not a natural thing to say and I fucking hate that it's impossible to know anymore if I'm wasting time replying to an AI/bot or not

[vcf]

Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural...

I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.

[hammock]

This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).

[sokoloff]

Is that the case? I would expect long-term investors would make more profits from the stock market than market makers.

If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?

[vcf]

It's simpler when looking at prediction markets because of bounded payoffs and the zero-sum nature, so these are pure trading gains.

In equity markets, you have both the trading and investment components to account for. Market makers like Citadel don't invest; they aim to exit positions as quickly as possible to minimize risk and capital requirements. Long-term investors commit capital to risky assets and are compensated with a risk premium (expected to be positive, but it can turn out to be negative). Usually, the "cost" of liquidity paid by long-term investors is tiny related to the overall expected returns. In prediction markets, you don't have that.

[hammock]

Yes to put the other comment into different words, vast maj the excess returns (alpha as opposed to beta ), or the “slack” in markets , however you want to think of it, are picked up by market makers.

Difference between prediction markets and stock markets is prediction markets on a flat road and stock market on an uphill road

[eloisant]

When the abstract is limited, you don't add useless qualifiers like "the largest prediction market"

[michaelt]

Some people feel strongly about defining jargon when using it - an article on here [1] the other day about Capture The Flag (CTF) hacking puzzle competitions was full of comments comparing the article didn’t say what CTFs were.

[1] https://news.ycombinator.com/item?id=48157559

[janalsncm]

It’s not a useless qualifier. Many readers might not know that Polymarket is the biggest now, and if at some future date it’s not the biggest anymore the statement makes it clear why they studied at this time.

[ashdksnndck]

This is a familiar style in abstracts. Weird as it sounds, it’s normal to have some language implying the reader is a hermit living in a cave. If it sounds like something an AI would say, maybe it’s because models have been trained on academic papers?

[philipwhiuk]

I agree - you're not going to be an insider on a significant proportion of trades and it would be stupid to use the same account for more than a couple.

Insiders are going to be earning large amounts in single trades, either by betting a lot when it's odds-on or a small amount when it's out the odds (for a large return).

I think it's just bad tense, which I think makes it not AI amusingly.

[LPisGood]

For what it’s worth that’s a sentence I would write if that were my paper and I was writing the abstract.

[wutwutwat]

Except this was a comment on hacker news, not an academic paper... on an article talking about prediction markets.

The context already exists, and there isn't any reason to tack that onto the end of what was said, and it doesn't matter for that sentence or the entire comment.

Just feels like something a agent being overly verbose/descriptive would say.

Another possibility could be that SEO for LLMs is now a thing, and keyword stuffing or model manipulation is going to take subtle things like `We study trading gains and losses on Polymarket, the largest prediction market.` and interpret that as fact, in order to, idk what to call it, trick?, brainwash? the model into internalizing "polymarket is the largest" into its trained dataset and then proceeding to recommend polymarket to people when they ask about prediction markets, even if isn't true anymore at that time.

[karlmedley]

The comment is the abstract of the paper verbatim. This is one of the authors posting their paper on HN, sharing their data, and answering questions. This not just normal and respectable behaviour, it's really cool.