The Polymarket community raised the alarm on flawed oracle decisions. Voting on UMA protocol swayed a prediction market with over $200M at stake.
Polymarket is facing backlash after the resolution of one prediction pair showed unfairness and a possible governance attack from UMA holders.
The prediction pair in question was targeting current news, where issues may be contentious to resolve. In this case, Polymarket opened a token pair for the question ‘Will Zelenskyy wear a suit before July?’. The market turned highly volatile, but the weight of ‘No’ votes expanded suspiciously in June.
The Polymarket platform faces the credibility issue just as open interest is on the rise. For the past month, open interest on prediction pairs increased from $88M to over $138M.
Polymarket also retains a baseline of around 20K daily active traders. Following the announcement of a partnership with X, Polymarket came to be seen as an arbiter of current news and a tool to decide on truth. The Zelenskyy suit debacle may undermine that authority.
Current news were among the most active prediction markets, on par or surpassing sports events. Yet current news are also the issue most open to interpretation and volatile trading.
Polymarket prediction pair shifts over $200M to improbable vote
What the Polymarket community missed was that Zelenskyy’s sartorial choice would not be confirmed by common sense or even suit experts, but by voting through UMA tokens. The pair has since been removed, but the discussion continues on social media.
The prediction platform partnered with UMA in February, allowing token holders to use their stake and vote on market resolution. However, soon after that, Polymarket suffered its first governance attack.
This time around, Polymarket faced stakes at over $200M, raising suspicions that UMA was used to hijack the decision process and extract funds for whales.
UMA whales staked $25M to dispute the vote
The prediction pair has now been removed from Polymarket as resolved. However, analysis of the voting shows the market almost resolved to ‘Yes’, which was the position of the wider community.
Media also reported Zelenskyy wore a suit, with more evidence emerging that the garment was not traditional, but could be called a suit. Even the designer admitted the garment was more likely to be considered a suit, as the opinion on ‘Yes’ initially prevailed.
The bigger problem was the ability to propose an alternative outcome to betting pairs, while making a relatively small stake. The other big problem is that most of the supply of UMA tokens is controlled by whales, allowing them to sway contested decisions.
In theory, UMA whales could sway multiple markets with an illogical outcome. However, most of the governance attacks pick prediction pairs with enough gray zone and plausible deniability.
UMA whales staked 23M tokens for this issue, valued at $25M. The staked assets grant an additional 21% annualised yield. Just four whales control over 40% of the UMA supply, while the biggest whale holds 25% of the token supply.
However, Uma Protocol only slashes a small part of the stake for malicious voting. Even when contested, an issue cannot escape the influence of UMA whales.
The Polymarket community is now calling for a revision of the oracle resolution system, to make it independent from human opinion and whale coordination.
