Bot traders exploit Polymarket mispricing, rake in nearly $40M profit bonanza

Algorithmic bettors just outsmarted the prediction markets—and walked away with a fortune.

The Great Polymarket Heist

Automated traders identified glaring pricing inefficiencies in Polymarket's prediction contracts, systematically placing wagers that netted them nearly $40 million in profits. These weren't retail gamblers—they were sophisticated bots executing precision strikes on mispriced probability markets.

Market makers left scrambling as code outmaneuvers human intuition. The bots identified discrepancies between market prices and actual probability outcomes, exploiting the gap with ruthless efficiency. Polymarket's decentralized infrastructure proved vulnerable to systematic arbitrage strategies that traditional bookmakers would have spotted—and shut down—immediately.

Another reminder that in decentralized finance, the house doesn't always win—but the quants with the fastest algorithms usually do. Who needs insider trading when you can just out-math everyone else?

IMDEA Networks Institute research shows the top three Polymarket gamblers netted nearly $4.2 million

According to the study, the top three wallets that participated in the trade placed more than 10,200 bets throughout the year. The wallets netted approximately $4.2 million in profits. The study suggested that many of the participants relied on automated programs to rake in such profits by exploiting mispriced bets.

Polymarket, unlike other betting sites, uses market forces to determine odds for outcomes rather than the platform itself. The site’s model creates an open and transparent price discovery and is decentralized. According to the research, the model leaves a loophole for arbitrage traders to exploit mispriced wagers, which traditional betting firms actively sought to prevent.

Across Polymarket, gamblers can buy shares against future outcomes priced between $0.01 and $1, which corresponds to 1% to 100%. The price reflects the implied probability of an event occurring. Overall, the sum of all potential outcomes in an event should amount to 100%. According to the study, this is not always the case; due to short-term fluctuations, the total odds may rise above or below the 100% threshold, which opens a loophole for risk-free trades. The extra margin created opens the door for arbitrage trading. 

The study outlined two distinct types of arbitrage trades. The first type highlighted a single market, where mismatched probabilities allow gamblers to profit by buying or selling opposing outcomes. The second highlighted type involved multiple markets where the result of one preliminary event influences another related market.

IMDEA Network Institute uncovered that political prediction markets, especially the 2024 U.S. elections, contributed the largest portion of the arbitrage profits. According to an analysis by Dune Analytics, monthly betting volume during the election across Polymarket exceeded $2.6 billion, which created a perfect opportunity for arbitrage strategies.

Study shows politically related bets were the most exploited on Polymarket

Sports markets generated more arbitrage opportunities in general, but with smaller potential for profits overall. According to the study, political wagers generated more cash compared to sports. The study revealed that most arbitrage trades generated gains between 1% to 5%. It added that extreme inefficiencies that delivered outsized profits were rare across the platform. One noted extreme event showed one participant placing $0.02 of yes and no shares in the same market, which generated nearly $59,000.

The research acknowledged that such a phenomenon arose when they were mismatched with real-world probabilities. It added that such a phenomenon created a rare discrepancy for gamblers to exploit. The study noted that there could be other forms of arbitrage currently ongoing. It cited a scenario where a semi-final match could influence follow-up markets, creating opportunities for more complex strategies.

The analysis suggested that as platforms like Polymarket continue to grow in popularity, the arbitrage market strategies will also continue to grow. A comparison was drawn from DeFi, where arbitrageurs have already developed advanced tools for market-making strategies. The study revealed how blockchain prediction markets remain vulnerable to exploits by a small group of skilled traders. The revelation has sparked questions about the long-term sustainability of the platform as participants continue to turn to automated methods.

KEY Difference Wire: the secret tool crypto projects use to get guaranteed media coverage