On-chain data speaks volumes: despite surging volumes on Polymarket, most participants are facing losses. Recent analysis shows that a tiny minority of Whales have reaped the bulk of profits, leaving Retail investors sidelined.
While Polymarket has established itself as the leading platform for decentralized prediction markets, particularly during the race to the White House, the financial reality for users is far less rosy than the overall volume suggests. According to blockchain data compiled by DeFi Oasis, approximately 70% of the 1.7 million addresses that have interacted with the protocol have recorded losses.
This figure is a harsh reminder of classic trading statistics, where the adage goes that the majority of traders end up losing their capital to the market. However, more than 95% of leveraged traders lose money. While this is less risky than futures trading, it’s important to realize that you need to educate yourself and practice for many hours before mastering the art of prediction market trading.
The distribution of profits highlights an extreme concentration of wealth, typical of financial markets but exacerbated here. The figures are staggering:
This disparity suggests that smart money and institutional players, likely equipped with better analytical tools or privileged information, largely dominate the ecosystem. Retail investors, often driven by emotion or media FOMO, serve as exit liquidity for these sophisticated investors. Indeed, whale manipulation is also very much present on Polymarket.
The enthusiasm surrounding Polymarket reached its ATH in activity during the U.S. elections, where volumes exploded. Many newcomers saw prediction markets as an opportunity for quick gains. However, the mechanics of these markets more closely resemble zero-sum trading than passive investing.
Now, it’s important to understand that, in most cases, you don’t need to be right but rather exploit the FOMO and fear of markets and opportunities arising from inefficiencies in pricing.
Data from DeFi Oasis confirms that the liquidity provided by the mass of small holders was siphoned off by a handful of expert traders. This phenomenon is reminiscent of the dynamics observed during a pump and dump, although the mechanism here is based on the probability of real events rather than direct manipulation of a token’s price.
While Polymarket offers a powerful tool for gauging market sentiment or hedging against certain geopolitical risks, it must be used judiciously and with innovation. As always in DeFi, the advantage goes to the best-informed and best-capitalized players. For the average trader, risk management must remain the absolute priority to avoid becoming part of the 70% of losers.
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Charles Ledoux is a Bitcoin and blockchain technology specialist. A graduate of the Crypto Academy, he has been a Bitcoin miner for over a year. He has written numerous masterclasses to educate newcomers to the industry and has authored over 2,000 articles on cryptocurrency. Now, he aims to share his passion for crypto through his articles for InvestX.
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