Polymarket 70% Retail Investors Lose Money! The Truth Behind 668 Whales Swallowing $3.7 Billion

DeFi Oasis data shows that approximately 70% of the 1.7 million trading addresses on Polymarket are at a loss. Less than 0.04% of addresses have gained over 70% of the total profit, totaling $3.7 billion. Among them, 668 addresses have profits exceeding $1 million, accounting for 71% of realized gains. Ethereum co-founder Vitalik Buterin defends prediction markets but faces questions about the morality of profiting from disasters.

The Extreme Distribution of $3.7 Billion in Profits

(Source: Dune Analytics)

DeFi Oasis’s analysis tracks total sales revenue plus redemption amounts minus purchase costs, excluding unrealized gains or losses. The data reveals an extreme inequality in profit distribution on Polymarket: the most profitable traders earn modest returns between $0 and $1,000, representing 24.56% of all addresses but only 0.86% of total profits. This means that a quarter of users are technically profitable, but their actual gains are negligible.

Winning more than $1,000 requires being among the top 4.9% of participants, a threshold that filters out most retail traders. True winners are concentrated in the top 0.04%, including professional traders, quantitative funds, and market makers using complex algorithms. 668 addresses have profits over $1 million, accounting for 71% of all realized gains, while 2,551 traders have profits ranging from $100,000 to $1 million.

This skewed distribution reflects a broader pattern in prediction markets, where professional traders and sophisticated algorithms often extract value from retail participants. Polymarket’s market structure allows informational and technological advantages to translate into massive profits. Those with insider information, political analysis skills, or algorithmic trading systems can systematically exploit retail traders’ cognitive biases and emotional decision-making.

Traders holding large open positions face a more complex situation. Even if they appear profitable on paper, their actual realized gains may be negative because Polymarket’s market liquidity can dry up during extreme events, preventing them from closing positions at ideal prices. Additionally, many retail traders hold positions until contract expiration, risking full losses if their judgments are wrong, while professional traders typically close positions before the outcome to lock in profits.

The data on losses is equally startling. Over 1.1 million addresses (63.5%) have losses between $0 and $1,000, which may be small per transaction but accumulate significantly. 149 addresses have losses exceeding $1 million, likely representing large-scale misjudgments or highly leveraged speculators. Overall, small losses among retail traders accumulate into profits for whales, exemplifying a typical wealth transfer mechanism.

Conflict of Interest and Market Maker Controversies

As the data is disclosed, Polymarket faces scrutiny over potential conflicts of interest. Platforms like Crypto.com and Kalshi are establishing internal market-making departments that trade directly with users. This model raises fundamental questions: when the platform itself acts as a counterparty, does it have an incentive to manipulate odds or information to ensure its own profits?

Supporters of internal market-making argue it enhances liquidity, allowing users to buy and sell contracts quickly at any time. Critics, however, point out that this creates a clear conflict of interest. The platform is both judge and participant, with access to all user positions and order flow, giving it an overwhelming informational advantage when betting against retail traders. More seriously, the platform could delay releasing critical information or adjust contract rules to protect its own positions.

Despite these concerns, Polymarket’s growth momentum remains strong. Nearly 462,600 active traders per month, with trading volume surpassing previous records. After operating overseas for three years, the platform paid a $1.4 million settlement with the US CFTC in 2022 and completed a beta relaunch in the US in November. Founder Shayne Coplan, now 27, is a self-made billionaire who recently participated in regulatory roundtables hosted by the SEC and CFTC.

The platform has attracted significant funding, including a $2 billion investment from Intercontinental Exchange, parent company of the NYSE, raising its valuation to $9 billion. While this institutional backing boosts credibility, it also raises new questions: can Polymarket maintain its decentralized ethos when major TradFi players become shareholders?

Three Major Pitfalls of Retail Traders’ Losses

Information Asymmetry and Overwhelming Disadvantage: Professional traders possess insider information, political analysis teams, and real-time data sources, making it impossible for retail traders to compete based solely on intuition and public news.

Algorithmic Market Maker Exploitation: Quant funds use complex algorithms to capture tiny price differences and exploit retail traders’ emotional orders, creating systematic harvesting.

Exit Dilemmas During Liquidity Crises: During extreme events, market liquidity plummets, making it difficult for retail traders to close positions at reasonable prices, forcing them to suffer full losses.

Vitalik’s Defense Sparks Ethical Controversy

Ethereum co-founder Vitalik Buterin recently defended prediction markets, countering critics who question the morality of betting on real-world events that could be tragic. He argues that these platforms offer a superior truth-seeking mechanism compared to social media, where sensational content bears no accountability. Buterin points out that economic incentives help keep prices accurate, limiting them between 0 and 1, thereby reducing the reflexivity often seen in traditional markets.

This defense has sparked a heated debate with Cassie Heart, founder of Quilibrium. Heart questions the morality of profiting from potential death and disasters, suggesting that prediction markets on catastrophic events can explain mainstream hostility toward cryptocurrencies. For example, when Polymarket launched a market on whether a certain politician would be assassinated, it provided economic incentives for a potential tragedy, possibly encouraging extreme behavior.

Buterin insists that stock markets also carry similar moral risks through short positions. When investors short a company’s stock, they are betting on its decline or bankruptcy, which involves profiting from others’ misfortune. Heart counters that the moral weight of company bankruptcy versus individual death is entirely different—bankruptcy is a business failure, while death involves human life.

This debate highlights the fundamental tension faced by prediction markets: they can effectively aggregate information and reveal true probabilities but may also turn events that should not be commodified into speculative targets. When Google Finance integrated Polymarket and Kalshi’s real-time data in November, displaying market probabilities directly in search results, prediction markets moved from the gray area into the mainstream.

Mainstreaming and Increasing Competition

In December, FanDuel launched the FanDuel Predicts platform in partnership with CME Group, offering event contracts on cryptocurrency prices, commodities, and economic indicators. The largest compliant US crypto exchange filed lawsuits in Michigan, Illinois, and Connecticut challenging their jurisdiction over prediction markets launched in January 2026 in cooperation with Kalshi. These moves demonstrate that mainstream exchanges are actively entering the prediction market space.

In 2024, total trading volume across major platforms is projected to reach $44 billion, with on-chain prediction market trading volume growing from less than $100 million per month at the start of the year to over $13 billion. Kalshi has raised $300 million at a $5 billion valuation. This explosive growth attracts more giants, but also intensifies competition for retail traders.

Concentration data shows prediction markets are consolidating their role in the retail trading cycle, although studies indicate most participants are subsidizing profits for a small elite. Whether clearer regulation and institutional access can improve retail traders’ situation remains uncertain. As professional market makers and quant funds flood in, the disadvantages faced by retail traders could further widen.