A CNBC investigation reveals that a vast majority of prediction market contracts, particularly on platforms like Polymarket, suffer from critically low trading volumes. This ‘thin’ liquidity exposes users to heightened volatility, increased trading costs, and a market landscape largely dominated by automated bots, raising concerns about fairness and accuracy for retail traders and potentially skilled investors alike.
While prediction market platforms like Polymarket have seen an explosion in overall trading volume, particularly around major events such as the 2024 election, a significant and concerning trend has emerged: the vast majority of individual market contracts remain astonishingly shallow. A recent CNBC analysis brings this issue to light, revealing that low trading volumes expose users to considerable risks from volatility and automated trading bots.
According to a detailed CNBC investigation of Polymarket's Gamma API data, conducted from 2021 through May of this year, a staggering 70% of all closed markets registered under $10,000 in reported notional volume. Even more striking, nearly 5% of all closed markets—over 45,000 contracts—recorded no volume whatsoever. Competitor Kalshi also reportedly features a large number of 'thin' markets, as indicated by an analysis on the on-chain platform Dune.
This lack of liquidity is not just an inconvenience; it poses substantial financial dangers for traders. Constantin Bürgi, a professor of economics at University College Dublin, explained to CNBC that "Thin markets by nature imply that small investments can result in large market movements and are typically more volatile." For new traders, this can translate to blowing out spreads between buy and sell prices, making transactions disproportionately expensive, as noted by Dartmouth College economics professor Eric Zitzewitz.
Experienced traders, often seeking capital efficiency, also shy away from these shallow pools. Logan Sudeith, a full-time prediction market trader, expressed a preference for "higher volume, short term [markets]." Indeed, the analysis found that markets lasting up to a week, especially those tied to high-profile events or figures like the war in Iran, Donald Trump, or Elon Musk, were most likely to attract significant volume.
Bots Reign Supreme in Shallow Markets
The problem is further compounded by the dominance of bots. Joshua Della Vedova, a business professor at the University of San Diego, found that over 80% of volume in Polymarket's markets with under $10,000 comes from automated bots. His research, which identified bots as wallets making more than 50 trades daily or 1,000 total trades, showed these bots generating millions in profits across all market types, while retail traders often faced losses, especially in thinly traded markets.
While bots don't necessarily push prices away from fair value in shallow markets due to the inherent risks, their preference for larger markets, where they can execute more transactions for profit, means that low-volume contracts remain less attractive for human participants and further exacerbate liquidity issues.
Accuracy and Influence Debated
Experts hold mixed views on the accuracy of thin markets. Strategists at Evercore ISI, after reviewing five years of data from both Polymarket and Kalshi, concluded that most quoted probabilities reside "in the thinly traded tail – where calibration is weakest." This suggests a potential unreliability in the predictions from low-volume markets.
However, other researchers, like Yale University finance professor Theis Ingerslev Jensen, argue that accuracy is more dependent on the quality of traders than the volume itself. Jensen's research with the London Business School indicates that skilled, informed traders drive the majority of accuracy on Polymarket. He cautions, "Thin markets are not automatically inaccurate, but they are less reliable."
Despite these concerns, the broader influence of prediction markets on the public and Wall Street is unlikely to be diminished, according to Harry Crane, a professor of statistics at Rutgers University. While liquidity should always be considered, he asserts that "the lack of liquidity, on its own, does not discredit a market's signal or make the market economically useless."
As prediction market volumes continue their rapid ascent, Crane anticipates that larger markets will expand further, while smaller ones may remain shallow. His ultimate advice to traders underscores personal responsibility: "Protect yourself at all times... Each individual entity needs to address them on their own."
Methodology:
CNBC compiled all closed market data from Polymarket's Gamma API, spanning 2021 to the end of May 2026, counting notional volume on both sides of a trade. This analysis was independently verified by Joshua Della Vedova, a business professor at the University of San Diego, whose cross-checking with an on-chain trade dataset of 222 million resolved Polymarket trades confirmed CNBC's findings.
