Prediction markets exploded in 2025—quadrupling annual trading volume to roughly $63.5 billion from $15.8 billion a year earlier—but that rapid growth is exposing structural strains that could make the sector fragile as it scales, according to a new report from blockchain security firm CertiK. What’s driving the surge - Much of the activity has concentrated around three dominant venues—Kalshi, Polymarket, and Opinion—while growth has been fueled more by incentives and event-driven spikes than steady organic demand. CertiK warns that when subsidies and promo-driven flows fade, liquidity and user retention may be tested. - Academic research cited by CertiK also found sharp increases in wash trading on Polymarket in 2024, with circular trades at one point accounting for nearly 60% of reported volume. That kind of activity inflates headline metrics even if it doesn’t immediately break market forecasts. When fake volume matters CertiK draws a key distinction between inflated activity and genuinely broken markets: fake volume only becomes a systemic problem when it changes how prices are formed. The firm lists signs that manipulation is bleeding into price formation: - Persistent price divergence for the same event across platforms that arbitrage does not correct - Probability shifts without corresponding news or data, driven by concentrated wallet clusters - Systematic bias in market pricing versus actual outcomes “If prediction markets remain consistently off by 5–10 points in one direction and that pattern correlates with identifiable whale or wash trading activity, that would be evidence that fake volume is bleeding into price formation,” CertiK told Decrypt. That said, the firm adds it has not seen wash trading materially distort prices at scale on the major platforms; probabilities have remained “broadly reliable” even during periods of elevated artificial activity. It cautions, however, that data are limited and that lower-liquidity markets could be far more vulnerable. Security architecture lagging growth Beyond market integrity, CertiK says the sector’s security posture is not keeping pace with its expansion. Many prediction platforms use hybrid Web2/Web3 architectures to balance onboarding ease with on-chain transparency—but combining those models “creates exposure to both attack surfaces simultaneously,” the report notes. CertiK points to a concrete incident in December 2025 that illustrates the risk: attackers exploited a vulnerability in the authentication flow of Magic Labs, a third-party email-login provider used by Polymarket. The flaw let attackers bypass two-factor authentication and seize control of accounts created via Magic’s email login, demonstrating that even secure smart contracts can be undermined by weaknesses in off-chain components. “Addressing this requires treating the full stack as a single security surface,” CertiK said, urging audits and testing of authentication, key management, and settlement together rather than separately. Regulation, concentration, and the road ahead Looking to 2026, CertiK says the industry is at a crossroads. Improved infrastructure and clearer federal guidance in the U.S. are positives, but unresolved questions around sustainability, state-level restrictions, and platform-regulator friction remain. The security firm expects the dominance of Kalshi, Polymarket, and Opinion to persist, but growth will depend on whether these platforms can retain users without incentives, navigate patchwork state rules, and harden their tech stacks. Bottom line: headline volumes tell a story of massive growth, but deeper metrics and stronger security and regulatory frameworks will determine whether prediction markets mature into a robust forecasting ecosystem—or risk structural fragility if artificial activity and architectural gaps begin to affect price formation. Decrypt has reached out to Polymarket for comment and will update this article if they respond. Read more AI-generated news on: undefined/news