Yale Study: 3% of Polymarket Traders Capture Most Profits
The Yale and LBS study analyzed 1.72 million Polymarket accounts and found that professional liquidity narrows spreads. That makes it harder for smaller traders to spot mispricings.
Key Takeaways
- A Yale and London Business School study analyzed 1.72 million Polymarket accounts and 210,322 markets over two years.
- About 3% of the accounts captured 27% of all dollar profits on the platform.
- According to the researchers, this advantage shrinks as more professional players enter and prices get tighter.
A small group of Polymarket traders captures most of the profits on the platform, according to a new academic study. According to the researchers, about 3% of accounts took home 27% of all dollar profits. At the same time, that advantage is getting smaller as more professional players enter the market and prices get tighter.
What the Study Shows
The working paper was written by researchers from Yale and the London Business School and looked at two years of Polymarket transactions. In total, 1.72 million accounts and 210,322 markets were analyzed. The authors used a statistical test that reruns each trader's trading history thousands of times to separate skill from luck.
Yale economist Theis Jensen, one of the authors, says the share of skilled traders will likely keep falling from about 3% to less than 1% as competition increases. His explanation is simple: more competition leads to better prices. Julie Hoover, an equity analyst at Bank of America, also points out that narrower spreads make it harder to find mispricings. According to her, smaller specialists may still keep an edge in niche markets, where deep knowledge of a narrow set of contracts remains important. That fits the broader dynamic on Polymarket, where trading in many markets remains heavily concentrated in a relatively small number of contracts.
Why This Matters
For European crypto readers, this matters because prediction markets are increasingly seen as a mix of trading, forecasting, and market data signals. If institutional liquidity keeps growing, it can make prices more accurate, but it can also make the playing field tougher for less informed traders. The study therefore ties into broader questions about how fair and efficient these markets really are.
More Institutional Money
Jensen also says large institutions often stay away from low-liquidity markets because small orders there can wipe out their own advantage. That leaves room for specialized traders to still keep an edge in specific markets. At the same time, the study suggests that more institutional volume could boost fee revenue for prediction market platforms and strengthen their role as hedge, forecast, and market data products.
