The Anatomy of a Decentralized Prediction Market: Microstructure Evidence from the Polymarket Order Book
How prediction market orders flow when nobody's really watching closely
A detailed examination of Polymarket, the largest blockchain-based prediction market, reveals that its order book looks nothing like traditional financial markets—with unusual spreads, a different pattern of available liquidity, and surprisingly little self-dealing. The most striking finding: inferring who bought and who sold from public data works only 59% of the time, barely better than a coin flip, forcing researchers to use hidden on-chain records instead.
Prediction markets are growing as a tool for forecasting everything from elections to climate outcomes, but we know almost nothing about how they actually work. This research documents Polymarket's plumbing in detail—revealing where the standard playbook from stock markets fails and where it holds. For anyone building a competing platform, trading on these markets, or relying on their price signals for real decisions, knowing what data you can actually trust matters enormously.