Decentralized prediction markets are more efficient at capturing insider information than the traditional stock market.
The Probability of Informed Trading on Polymarket significantly exceeds the benchmarks for equity markets. These platforms are better at aggregating secret or expert knowledge into a single price. Crypto based betting is often viewed as a wild west of speculation and noise. This measurement shows that the insiders are actually doing the heavy lifting of price discovery. Prediction markets represent a more reliable tool for forecasting the future than traditional financial instruments.
Informed Trading in Decentralized Prediction Markets: Microstructure Evidence from Polymarket
SSRN · 6632818
This study provides the first structural measurement of informed trading on Polymarket, a leading decentralized prediction market. Applying the Easley et al. (1996) PIN model to 36,596 marketday observations across 1,010 binary contracts, we document a mean Probability of Informed Trading of 0.222 substantially exceeding equity benchmarks. Market size exhibits a robust positive association with PIN (β = 0.0305, p < 0.001), reversing the traditional liquidity-adverse selection nexus. Order imbala