Polymarket has replaced the single-price snapshot used to settle short-dated crypto contracts with a time-weighted average price, following months of trader complaints and academic research identifying widespread settlement manipulation.
The change comes after researchers from Stanford University and Singapore Management University found that 821 accounts made $8.2 million in settlement windows they classified as likely manipulated.
The Five-Second Trick
The researchers examined roughly two months of five-minute Bitcoin contracts on Polymarket. They found unusually large orders on Binance in the final seconds before settlement, followed by rapid price reversals.
The pattern was stark: a trader would accumulate a large position on Polymarket, then move the spot price on Binance during the settlement window to force the contract to resolve in their favor. The cost of moving the price on Binance was less than the profit from the winning Polymarket position.
"A bet the market treated as near-certain was overturned one time in three," the authors wrote. Excluding market makers, 93% of losses in windows classified as manipulated fell on retail traders.
Pseudonymous analyst Variance Lover had raised similar concerns as early as May, describing the mechanism in detail. "By now, most people are aware that market manipulation has become a major problem on Polymarket's 5-minute crypto markets," they wrote.
The Fix
Five-minute markets will now use a 30-second average price, while 15-minute and four-hour markets will use a 60-second average. Data will be delivered through Chainlink Data Streams.
Polymarket is adding $1 million in liquidity rewards across impacted markets through August to support the transition.
The new system mirrors safeguards used by rival platform Kalshi, which resolves markets using a regulated CF Benchmarks price index with a 60-second moving average. Kalshi said it has conducted 150–250 material investigations per quarter and made about 40–50 referrals to the CFTC this year.
Structural Vulnerability
The researchers noted that the vulnerability is inherent to any contract that settles on a movable price. "An asset-price contract settles on a financial price, and that price can be moved by trading the underlying market itself," they wrote.
The fix makes manipulation significantly more expensive — a trader would need to sustain the artificial price for 30–60 seconds rather than a brief spike — but does not eliminate the theoretical possibility entirely. The question now is whether the higher cost deters manipulation in practice.