Institutional money has been flooding into Polymarket. Is this an opportunity or a risk?
For those who consider Polymarket a Wild West of degenerate gambling, the latest report from Dune offers a fascinating rebuttal.
According to the report, more than 91% of Polymarket's on-chain volume comes from "institutional money," meaning high-frequency traders, asset managers and arbitrageurs. They have no view on whether Iran will close its airspace. They don't care who will lose the Ballon d'Or this year.
Their money is made by arbitraging Polymarket odds back and forth between the blue markets, the green ones and maybe some of the traditional rainbow ones.
The real directional signal comes from a mid-level tier of just 18,457 wallets, which Dune terms a "conviction cohort." Though lacking in volume and profit, these wallets hold the largest share of "open risk," and you can tap into them for clear market-implied probabilities.
You might be forgiven for dismissing this clumsy sales pitch as marketing slop, but Dune's research has actually been corroborated, for once. The Anti-Corruption Data Collective (ACDC) found a similar split among Polymarket's longshot bettors, which it sorts into Orcas, Whales and Bots. In markets around major military events, the Orcas place their bets first and earn the highest returns. The Whales follow their lead with a larger position, to get the highest profits. Even the ratios are the same. ACDC estimates that 10.6% of all wallets on military markets are Orcas, not far from DUNE’s estimate of 9% for all markets.
The rest are "Small Fish," the retail traders who take the other side of those trades and, more often than not, lose money to the Whales and Orcas.
Long-term health effects
Dune's conclusion is pretty straightforward. Prediction markets now closely resemble the three-tier wedding-cake structure of traditional markets, with Jane Street skimming off the top, bulge brackets trading in the middle and r/wallstreetbets memeing at the bottom. "The volume picture looks like any institutional OTC market," the report claims.
However, what's perfectly fine for the Nasdaq might prove rather limiting for the likes of Polymarket or Hyperliquid's HIP-4 outcome markets. Equities are generally positive-sum. No matter how efficient or accurately priced they are, everyone can still profit from earnings, new innovations, increased productivity or the discovery of cobalt under the Democratic Republic of Somewhere Distant. Prediction markets, however, are zero-sum, or worse once fees are counted. Every profit comes from someone else who got it totally wrong on Kylian Mbappé or Bitcoin prices. A highly efficient and accurately priced market therefore leaves very little money to be made, at least for the retail trader.
If the Dune and ACDC findings are right and prediction markets have already reached a high level of maturity, we should see retail interest taper off in the near term. Fewer events will be mispriced, there will be fewer discoveries to be made, and fewer political science majors will make a living from betting against long shots like " Will China invade Taiwan by end of 2026? ", which traded at around 24% Yes in December last year. What remains is recreational sports betting, which already dominates at Kalshi, where sports made up roughly 89% of 2025 fee revenue, by one estimate .
This is probably why prediction markets are diversifying, with Polymarket adding perps and parlays and Kalshi adding gold and silver perps, combos and a data deal with CNN . The clock is ticking. It remains to be seen how many college students and armchair experts will stay to pit their egos against Susquehanna quants and insiders, including a White House staffer caught betting on Trump's own speeches.
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