Decentralized prediction markets are more efficient at capturing insider information than the traditional stock market.
April 26, 2026
Original Paper
Informed Trading in Decentralized Prediction Markets: Microstructure Evidence from Polymarket
SSRN · 6632818
The Takeaway
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.
From the abstract
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