Revolut has taken another step in its push to expand regulated crypto access in the Middle East, receiving in-principle approval from Dubai’s Virtual Assets Regulatory Authority (VARA) to provide crypto-related services in the United Arab Emirates.

In a notice shared on Wednesday, the UK-based financial group said VARA’s approval follows permission from the Central Bank of the UAE for payment activities. The regulator’s green light, Revolut added, would allow the company to offer broker-dealer, asset management and investment, and exchange services to users in the UAE—via the Revolut app and its Revolut X trading venue.

Key takeaways

• VARA granted Revolut in-principle approval for multiple virtual asset business lines in the UAE.
• The approval comes after the UAE Central Bank cleared Revolut for payment-related activities.
• Revolut says its UAE rollout will support users buying, selling, and holding digital assets through the app and Revolut X.
• Revolut’s UAE expansion follows its UK banking license approval in March, as the firm pursues broader chartering plans.
• Revolut is also managing regulatory risk in Europe, including plans to delist the USDT stablecoin in certain markets next month.

VARA approval positions Revolut for UAE virtual asset services

Revolut framed the VARA approval as a foundation for bringing its “trusted virtual asset services” into a regulated environment. Joseph Khair, head of digital assets at Revolut’s UAE free zone establishment, said the decision supports the company’s ability to introduce its services while operating under local oversight.

Under the approval, Revolut would be able to operate across key categories of crypto-related activity: brokerage/dealer services, management and investment functions, and exchange services. Revolut also indicated that the planned offering is designed for UAE-based customers, enabling them to buy, sell, and hold digital assets through the Revolut app and the Revolut X platform.

How the UAE move fits Revolut’s broader licensing strategy

The UAE authorization marks a continuation of Revolut’s multi-region expansion strategy that has increasingly relied on banking and financial regulatory milestones to support digital asset offerings.

Earlier this year, Revolut reported that it received a UK banking license in March. The company has said it also has similar applications pending in the United States for a banking charter, and in Peru for related licensing, as part of its effort to build a globally consistent regulatory footprint.

In the UAE, VARA’s list of licensed firms provides additional context. At the time of publication, VARA had 51 companies listed as licensed to offer crypto-related services in the country, while 22 entities had received in-principle approval. That approval category is particularly important for companies seeking to prepare deployments ahead of full authorization.

Competitive landscape: Kraken’s regional plans already underway

Revolut is not the only major financial firm moving through VARA’s authorization pathway. VARA previously issued preliminary approval to Payward’s parent company—crypto exchange Kraken—in May, according to earlier coverage. That approval suggested Kraken’s presence in the region was expected to expand toward a fuller launch in the near term.

For users, these approvals matter because they signal which platforms are moving from standalone crypto access into structured, regulator-aligned services—potentially influencing product availability, custody and brokerage mechanics, and compliance expectations.

For investors and industry observers, the approvals also provide signals about how Dubai’s regime is shaping market entry. VARA’s tiered approach—licensing for some firms and in-principle approval for others—creates a pipeline of operators that can eventually compete on service quality while meeting progressively stricter requirements.

Revolut’s expansion comes alongside Europe’s stablecoin tightening

Revolut’s UAE progress is occurring as the firm navigates crypto compliance changes closer to home. Last week, Cointelegraph reported that Revolut planned to delist Tether’s USDT stablecoin starting in August for the European Economic Area (EEA) and Switzerland.

That decision, a Revolut spokesperson told Cointelegraph, followed a review of the company’s crypto services and risk considerations under the European Union’s Markets in Crypto-Assets (MiCA) framework. The EU rule set requires companies offering digital asset services to be licensed by July 1, and Revolut said the stablecoin review was carried out in the context of meeting those obligations.

In other words, Revolut’s story is not just about adding new markets—it is also about reshaping product support based on jurisdiction-specific regulation. As the company scales to the UAE, its European platform adjustments underscore how compliance frameworks are pushing firms to rethink which assets they can reliably support under local rules.

Readers should watch VARA’s next steps for Revolut: in-principle approval typically precedes more detailed requirements before full operational capabilities begin. It will also be important to see how Revolut’s UAE product rollout interacts with its ongoing European restructuring, particularly as MiCA licensing timelines continue to affect the broader stablecoin and digital asset landscape.

Senate Democrats have intensified scrutiny of Acting U.S. Attorney General Todd Blanche during his confirmation hearing, accusing him of weakening crypto enforcement while President Donald Trump’s digital asset businesses have expanded.

According to proceedings from the Senate Judiciary Committee hearing on Wednesday, Senator Dick Durbin used his opening remarks to argue that Blanche helped dismantle the Justice Department’s crypto enforcement efforts while serving as deputy attorney general, saying those decisions benefited Trump’s financial interests in the digital asset sector.

Durbin pointed to Blanche’s reported role in disbanding the Justice Department’s crypto enforcement unit in April 2025. The Illinois senator argued that removing the unit allowed Trump to earn an estimated $1.4 billion from crypto-related ventures, including his family’s involvement with World Liberty Financial. Trump has denied wrongdoing connected to his digital asset businesses.

Adding to his criticism, Durbin alleged that former Binance CEO Changpeng “CZ” Zhao helped channel a $2 billion investment into World Liberty Financial before later receiving a presidential pardon.

Zhao pleaded guilty in 2023 to a felony charge tied to anti-money laundering violations at Binance. Durbin told lawmakers, “Every smarmy, suspect deal in this administration has cryptocurrency behind the curtain.”

Democrats tie crypto oversight to ethics concerns

Beyond Blanche’s nomination, several Senate Democrats have continued pressing for stricter ethics safeguards in crypto legislation.

Senators Chris Murphy, Jeff Merkley and Chris Van Hollen have said they cannot support the Digital Asset Market Clarity Act unless lawmakers add enforceable conflict-of-interest rules covering senior government officials and their families. Their objections focus on Trump’s crypto ventures, including his memecoin and World Liberty Financial.

Murphy argued Congress should not establish a new regulatory framework for digital assets unless it prevents public officials from profiting from industries they oversee. He said there was “no reason to pass a new regulatory system for crypto if this system does not stop Trump’s corruption.”

Merkley has called for ethics restrictions covering the president, vice president, Cabinet officials and members of Congress, while Van Hollen has said the legislation also requires stronger consumer protections and anti-crime provisions before he could support it.

Senator Elizabeth Warren has advanced similar proposals calling for tighter restrictions on crypto profits involving senior government officials.

Blanche defends new DOJ approach to crypto cases

As the hearing continued, Republican Senator Thom Tillis questioned Blanche about Zhao’s presidential pardon, saying he remained concerned by the decision. Blanche responded that he would review the pardon process if confirmed as attorney general.

Blanche has served as acting U.S. attorney general since Pamela Bondi was dismissed in April. Earlier this year, he issued a Justice Department memorandum ending what he described as “regulation by prosecution” in the crypto industry.

Financial disclosures also showed Blanche previously held at least $159,000 in digital asset-related investments before transferring those holdings to his children and grandchildren.

Speaking at the Bitcoin 2026 conference after becoming acting attorney general, Blanche said federal prosecutors should not target software developers who merely write code without knowingly assisting criminal activity. He stated that developers who are not third-party users of their software and who do not knowingly help others commit crimes would not be investigated or charged.

Even with that policy, the Justice Department continues to pursue several crypto-related prosecutions. Federal prosecutors are expected to retry Tornado Cash co-founder Roman Storm later this year after a jury failed to reach a verdict on two charges during his 2025 trial. 

Blanche’s confirmation now depends on the Republican-controlled Senate, where the party holds a narrow 52-47 majority while Senator Mitch McConnell remains hospitalized following a fall that led to pneumonia.

A new academic study has found that Polymarket’s five-minute Bitcoin prediction contracts have created incentives for sophisticated traders to manipulate spot prices and profit at the expense of ordinary participants.

According to researchers from Stanford University and Singapore Management University, the structure of Polymarket’s short-duration Bitcoin markets encourages traders to influence the cryptocurrency’s spot price shortly before contracts settle. Their paper concluded that the issue stems from the way settlement prices are calculated rather than from prediction markets themselves.

The researchers examined contracts that ask users to predict whether Bitcoin will finish above or below a fixed price within five minutes. Because settlements rely on Chainlink price feeds based on Bitcoin’s market price at the end of each trading window, traders who hold large positions may have an incentive to push the spot price in a favorable direction just before settlement.

Settlement design creates opportunities for manipulation

After comparing market activity before and after Polymarket introduced these contracts in July 2024, the researchers identified a clear pattern in Bitcoin trading. According to the study, spot-market order flow increased sharply near settlement, and prices frequently reversed soon afterward, behavior the researchers said is consistent with settlement-price manipulation.

The paper estimated that the trading pattern shifted roughly $1.28 million from regular market participants to traders who exploited the settlement process during the period analyzed. Rather than describing prediction markets as fundamentally flawed, the researchers argued that contract design plays the central role in reducing manipulation risks.

Among the changes discussed in the study, extending contract duration from five minutes to 15 minutes largely removed the abnormal trading behavior. The researchers also pointed to alternative settlement methods, including time-weighted average prices, as possible ways to make future contracts more resistant to manipulation.

Their findings extend beyond cryptocurrency markets. According to the paper, traditional exchanges such as Nasdaq and Cboe have proposed event contracts linked to asset prices, making settlement methodology an increasingly important issue as similar products move into regulated financial markets.

Prediction markets continue expanding despite regulatory pressure

Even as researchers highlighted weaknesses in contract design, prediction markets have continued to attract record trading activity. According to DefiLlama data, Kalshi processed about $9.4 billion in trading volume during June, while Polymarket International recorded roughly $4.3 billion over the same period.

Much of that activity came from markets tied to the expanded 2026 FIFA World Cup. Data from Polymarket and Kalshi showed their World Cup winner contracts had generated more than $5.4 billion in combined trading volume at the time of writing, including about $4.25 billion on Polymarket and roughly $1.2 billion on Kalshi.

At the same time, the industry’s rapid growth has drawn increased regulatory attention in the United States. Several states have challenged the operations of companies including Kalshi and Polymarket this year, while the Commodity Futures Trading Commission has maintained that federally regulated event contracts fall under its exclusive jurisdiction rather than state gambling laws.

With those legal disputes now moving through the federal court system, legal observers have said conflicting appellate rulings could eventually require the US Supreme Court to determine whether oversight of prediction markets belongs primarily to the states or to the CFTC.

South Korea plans to adopt the National Asset Basic Act to update the country’s state asset management system from the outdated State Property Act of 1950.

The Ministry of Economy and Finance (MOEF) hopes to modernize the management of national assets and explicitly includes digital assets and intellectual property, broadening the definition of state assets, the MOEF announced during a briefing at the President’s Blue House on Wednesday.

As part of the reform, the ministry also reiterated plans to tokenize government bonds on a blockchain to reduce transaction, as part of a 2027 pilot project. It also plans to explore the tokenization of state-owned real estate to encourage retail participation and share part of the generated returns with the public.

The move represents a significant regulatory development for South Korea, which has one of the world’s most active retail crypto markets. The framework seeks to shift the management of state-owned property from a legacy, real estate-focused framework to a new model focused on value creation.

Report from South Korea’s Ministry of Finance and Economy. Source: mofe.go.kr 

Seoul moves closer to CBDC, blockchain economy

On Tuesday, South Korea’s government unveiled its 2026 Economic Growth Strategy for the Second Half, which includes plans to conduct a 2027 pilot linking tokenized government bonds to its central bank digital currency (CBDC) infrastructure.

The plan calls for authorities to study how to make the Bank of Korea’s (BOK) CBDC infrastructure interoperable with other blockchains. The idea was first outlined publicly on July 1 by BOK Governor Hyun Song Shin at the European Central Bank Forum on Central Banking.

Authorities plan to introduce measures later this year and said the pilot would form part of a broader effort to create a “blockchain economy.” 

Related: ABA, state banking groups push back on CLARITY Act stablecoin yield provisions

On April 16, South Korea’s MOEF announced a pilot project that will use tokenized deposits to execute government operational spending, with a full rollout set for the fourth quarter of 2026. 

Changes to South Korea Capital Markets Act and Electronic Securities Act, the country’s first tokenized securities framework, are scheduled to take full effect on Feb. 4, 2027.

The framework will legally recognize blockchain-ledgers as valid securities registries, bringing tokenized assets under the Financial Services Commission’s jurisdiction out of their current experimental stage. 

Magazine: Thai scammer’s $122M wallet, Japan embraces crypto credit: Asia Expres

Mass user migration following the end of the Markets in Crypto-Assets Regulation (MiCA) transitional period could strain compliance at virtual asset service providers (VASPs) in the European Union, according to Bruna Szego, chair of the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA). 

“Because we know customers will rush to withdraw, this will put additional pressure on these VASPs,” Szego said during a Wednesday briefing with the European Parliament’s Committee on Economic and Monetary Affairs.

Szego said firms winding down their EU operations could come under pressure as customers rush to withdraw, while licensed crypto companies could face onboarding challenges as they absorb new users. She urged service providers to maintain efficient compliance procedures throughout the transition.

MiCA’s 18-month transitional period ended on July 1, requiring crypto asset service providers (CASPs) to hold licenses to continue serving EU customers. The European Securities and Markets Authority said crypto service providers that remain unauthorized by the deadline must take “immediate” steps to wind down their EU activities.

Related: Last-minute MiCA approvals mark end of EU transition period

AMLA maps next phase of crypto oversight

Ahead of MiCA’s July 1 deadline, AMLA published an advisory note warning crypto firms about money laundering risks arising from the end of the transitional period. The guidance outlined measures for firms winding down their EU operations and licensed providers onboarding new customers to maintain anti-money laundering controls during the transition.

Szego said AMLA will publish a report before the end of the year on money laundering risks in the crypto sector and supervisory practices across the bloc. She added that the authority is also expanding its blockchain analytics capabilities to strengthen oversight of crypto-asset service providers.

The report will also assess how national authorities supervise crypto-asset service providers and identify differences in supervisory practices across member states.

Szego said AMLA intends to use the findings to coordinate follow-up work with national regulators where needed as it works toward more consistent anti-money laundering oversight across the bloc.

Magazine: Will the crypto lobby’s $189M campaign get CLARITY over the line?

Cointelegraph is committed to independent, transparent journalism. This news article is produced in accordance with Cointelegraph’s Editorial Policy and aims to provide accurate and timely information. Readers are encouraged to verify information independently.

Robinhood Chain’s explosive launch this month has reignited one of Ethereum’s longest-running debates: Do successful layer-2 networks increase demand for ETH, the asset, or do the new entrants capture all of the value for themselves?

The retail brokerage’s Arbitrum-based Ethereum L2 has become one of Ethereum’s busiest rollups since its launch on July 1.

More than $141 million in Ether was bridged onto the chain in its first two weeks. DeFiLlama data shows more than half a million wallets now hold ETH on the network, and a memecoin frenzy saw Robinhood Chain surge past the Ethereum L1 and Coinbase’s Base L2 in 24-hour DEX trading volume.

Ether has pumped on the news, gaining around 15% from $1,582 on July 1 to $1,825 by July 13, according to Coingecko data, following a wave of bullish comments.

World Liberty Financial’s Eric Trump posted on July 11, “ETH is pumping hard! Great to see!” while Tom Lee, chairman of BitMine Immersion Technologies, argued the launch reinforces the thesis that “ETH is money,” pointing to the asset’s role as the chain’s native gas token and the L2’s finality on Ethereum’s mainnet.

Ethereum investors have heard similar arguments before.

Related: Robinhood L2 sparks ETH optimism, Saylor ‘muddies waters.’ Hodler’s Digest, July 5-12, 2026

Arbitrum, Optimism and Base each drove waves of users and activity onto Ethereum’s L2 ecosystem, but failed to move the needle meaningfully in Ether’s price, as most of the economic activity remained on the rollups themselves.

Robinhood Chain’s launch is arguably different. Unlike previous rollups built by crypto-native firms, the network was developed by a publicly listed retail brokerage with tens of millions of customers to support tokenized stocks and other real-world assets.

Within days of launch, it already accounted for 6.9% of all tokenized stockholders, according to data from Token Terminal.

Ether price response to Robinhood Chain’s launch. Source Coingecko

And, if Robinhood’s model succeeds, it could encourage banks, brokers and asset managers to build L2s of their own, and cement Ethereum as the default blockchain for TradFi. Deutsche Bank is already in the process of building a ZK-powered Ethereum L2 called DAMA 2, focused on institutional finance.

Why Robinhood could be a turning point

Ethereum’s L2 networks use rollup technology to process transactions away from Ethereum’s main chain and periodically settle them back to the network. Robinhood Chain uses Arbitrum technology and is compatible with Ethereum’s wider ecosystem.

But what has caught the industry’s attention isn’t the technology itself, as much as who is using it.

“It’s a real milestone,” Alex Gluchowski, founder and chief executive of Matter Labs, the developer behind Ethereum L2 zkSync, told Cointelegraph.

“It shows Ethereum L2s have gone from something crypto-native teams experiment with to infrastructure a regulated, publicly listed company will run its business on.”

Rather than building a blockchain from scratch, as Stripe has opted to do with Tempo, Robinhood chose to tailor an Ethereum rollup to its own needs “for privacy, compliance and performance, while still inheriting Ethereum’s security and connecting to its liquidity,” he added.

Max Shannon, senior research analyst at Bitwise, told Cointelegraph that Robinhood Chain’s success is more significant than previous L2 deployments.

“It represents the growth of the Ethereum ecosystem, particularly among major institutions,” he said. “It also arrives at a time when Ethereum has more broadly repositioned itself toward institutions through Eth Labs and Ethereum Institutional.”

Does Robinhood Chain change the investment case for ETH?

For Shannon, Robinhood’s launch strengthens the investment case for Ethereum because it reinforces the network’s position as the leading blockchain for institutional adoption.

He said ETH has the “network characteristics” to become the reserve asset for a growing network of institutional L2s. But like many, he believes Ethereum’s tokenomics need to be improved so that increased network activity is reflected more clearly in demand for ETH.

Ethereum has been criticized frequently for its decision to lower fees for L2s as a way to spark adoption and gain network effects. Ark Invest’s Lorenzo Valente posted on July 14 that Robinhood Chain had generated $816,000 in revenue since launch, with Arbitrum taking a 10% cut, but only 0.15% of the total being paid back to Ethereum.

“If your thesis is ‘ETH is money,’ Robinhood building here is ultra bullish. More activity, more ETH collateral, more lindyness. If your thesis is ‘ETH is a revenue generating asset,’ this is the ultra-bear case.”

GrowThePie said that Valente’s figures for Eth’s share of the revenue were off by a factor of four and argued “0.6% of revenue is the correct figure.” But even the higher figure is not a meaningful driver of revenue to the L1. Robinhood Chain generated more gas fees than any other L2 in the past week, but Ethereum only saw $4,400 of that.

Source: Matze, GrowThePie

Gluchowski said ETH’s appreciation would not be based on fee revenue, but would likely come from becoming widely accepted money throughout the L2 ecosystems.

“People might pay fees in stablecoins or never think about gas at all,” he said. “But as more value settles through Ethereum, ETH starts to look less like a fee token and more like a base monetary asset for this system.”

Related: Robinhood says its AI agent feature will ‘soon’ be assisting crypto traders

Even ETH bears like Mike Dudas from 6th Man Ventures, have described Robinhood Chain as “the single most bullish thing I’ve seen in eth-land in years.”

But after Dudas saw Valente’s post, he added the proviso that “Eth cooked unless ‘eth is money’ takes off or the price of l1 settlement increases.”

The value accrual question remains

While Robinhood’s success may have bolstered the case for Ethereum’s scaling strategy, it has yet to settle one of the network’s biggest unanswered questions: how does growing L2 activity ultimately translate into value for ETH?

Shannon said that recent upgrades like Fusaka have improved Ethereum’s scaling capabilities, but despite transaction activity reaching record levels, demand has yet to translate into meaningfully higher fees or increased ETH burn.

“Robinhood will not solve this problem,” Shannon said, and the collective growth of L2s will likely not either… It requires a wholesale change in developer mindset and in ETH’s token economics.”

Another uncertainty is how much ETH institutional users will actually hold directly. As tokenized stocks and other RWAs increasingly trade against stablecoins, many users may rarely interact with ETH, even though it underpins the network behind the scenes.

Robinhood may have shown that a major financial institution is willing to build on Ethereum’s infrastructure, but whether that ultimately translates into stronger demand for ETH remains to be seen.

Magazine Ethereum’s much-hated staking ‘tax’ may already be obsolete

Base creator Jesse Pollak has acknowledged that the network’s multi-year bet on onchain social products did not deliver the expected growth and has redirected Base toward trading, payments, and AI-powered financial infrastructure.

Base returns to infrastructure after social experiment falls short

According to a post published by Jesse Pollak on Wednesday, the first quarter of 2026 became a turning point after Base spent nearly two years betting that developers and social applications would drive the next stage of crypto adoption.

lots of conversations about base over the last week. wanted to share my candid take after a week of listening and a lot of reflection over the last 6 months.

first off – in case it’s not obvious, the first quarter of 2026 was a punch in the face. I spent 2024 and 2025 making a…

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— jesse.base.eth (@jessepollak) July 15, 2026

While developers helped expand sectors such as stablecoins, perpetual futures, and prediction markets, Pollak said products including Farcaster, Zora, mini apps, and creator coins did not become the growth engines Base had expected.

Accepting responsibility for the outcome, Pollak wrote that he had been wrong about the strategy, while adding that it remains uncertain whether the approach failed because of poor timing or because the underlying thesis was incorrect.

The reassessment also came with organizational changes. Pollak said he has handed responsibility for the Base App back to Coinbase so he can concentrate on developing the Base blockchain itself. Crypto investor Jordan Fish, better known as Cobie, will oversee the app’s next phase within Coinbase.

Coinbase strengthened its relationship with Cobie last year through two transactions worth $400 million. Those deals included the $375 million acquisition of Echo, his onchain fundraising platform, along with a separate $25 million purchase of an NFT tied to the return of his UpOnly podcast.

Pollak also acknowledged that Base lost ground in several product categories while focusing heavily on social experiences. Although the network supported trading applications such as Avantis and Limitless, he said those platforms remained smaller than competing services, while Base also needed stronger tokenization tools and enterprise payment infrastructure.

Trading, payments and AI become Base’s priorities

Having stepped away from daily work on the Base App, Pollak said his attention has returned to the blockchain itself, where he has worked on upgrades including Azul, Beryl, B20, privacy improvements, and ledger development.

Looking ahead, Pollak said Base will concentrate on three priorities throughout 2026: trading, payments, and AI agents. Under the trading strategy, the network plans to support more onchain assets, including tokenized stocks, meme tokens, and application tokens.

Payments will focus on expanding stablecoin use for consumers and businesses, while AI infrastructure will target software-based economic systems that require programmable digital money.

Pollak has previously argued that AI agents represent an important use case for crypto because autonomous software can move funds through APIs and smart contracts without traditional payment systems. He added that developers will continue receiving support through initiatives including Base Layer, Base Batches, the Base Ecosystem Fund, and distribution across Coinbase and the Base App.

Pollak also said Base has recorded quarterly growth in decentralized exchange market share and payment volume, although he did not disclose supporting figures.

The renewed focus on payments comes as stablecoin economics face increasing competitive pressure across the industry. As crypto.news previously reported, JPMorgan lowered its earnings forecasts for Coinbase and Circle after a revised USDC revenue-sharing agreement with Hyperliquid.

According to the bank, the agreement could reduce the long-term profitability of the stablecoin business because issuers may have to share a larger portion of reserve income with distribution partners to expand adoption. Although separate from Base’s product roadmap, the development highlights the increasingly competitive environment surrounding blockchain payment infrastructure.

Closing his update, Pollak said Base intends to become the blockchain where global financial activity settles over the coming decades, describing that objective as the network’s long-term direction.

Prediction markets are attracting mainstream attention—and they’re also raising new questions about how their mechanics can shape market behavior. A new research paper from Stanford University and Singapore Management University argues that Polymarket’s short-horizon Bitcoin contracts can create incentives for sophisticated traders to manipulate spot prices around settlement, at a potential cost to retail participants.

The study focuses on Polymarket wagers that settle after five minutes based on Bitcoin’s price relative to a fixed threshold. Because settlement depends on Chainlink price feeds tied to the end-of-window spot price, the authors say traders can profit by influencing the spot market immediately before the contract resolves.

Key takeaways

• Settlement based on a five-minute spot price can encourage end-of-window price manipulation.
• Researchers observed larger order-flow spikes shortly before settlement and quick price reversals after.
• The paper estimates about $1.28 million may have shifted from ordinary traders to manipulators during the sample period.
• Extending the contract window from five minutes to 15 minutes significantly reduced the effect.
• The findings highlight why contract design matters, not just whether prediction markets exist.

How five-minute Bitcoin contracts can change incentives

The paper analyzes Polymarket contracts where traders bet whether Bitcoin’s price will finish above or below a predetermined level after five minutes. Settlement is determined using Chainlink price feeds that reflect the Bitcoin price at the end of each trading window.

According to the researchers, this structure can produce a specific incentive: if the settlement price effectively “locks in” at the end of a short period, participants have a reason to influence market conditions right before that moment. In short-horizon settings, even small price moves can determine outcomes, making it easier for sophisticated traders to attempt to steer the spot price toward a preferred settlement level.

What the researchers found in Polymarket activity

To test the claim, the authors compared trading activity before and after Polymarket introduced these five-minute Bitcoin contracts in July 2024. They report sharp increases in Bitcoin spot-market order flow just before settlement, followed by rapid price reversals.

The paper interprets this pattern as consistent with settlement-price manipulation: order-flow concentrates near the settlement boundary, and spot prices then unwind quickly after resolution—suggesting the pre-settlement movement may not persist beyond the contract’s settlement point.

Quantitatively, the study estimates the behavior transferred approximately $1.28 million from ordinary traders to manipulators during the sampled period. The researchers also argue that the mechanism is sensitive to the timing of settlement: when contract durations were extended from five minutes to 15 minutes, the manipulation effect was largely eliminated.

Manipulation isn’t “inherent”—settlement design may be the lever

A central point of the paper is that its results do not imply prediction markets are intrinsically vulnerable to manipulation. Instead, the authors argue that design choices—particularly how settlement prices are produced—can materially affect the risk.

Beyond lengthening contract windows, the researchers point to alternative settlement methods that could reduce incentives to tamper with the precise end-of-window price. They specifically mention approaches such as using time-weighted average prices (TWAP) rather than a single end-point spot price, which would make it harder to profit from last-moment spot moves.

For market participants, the practical takeaway is straightforward: the shorter the window and the more settlement hinges on an exact spot read at a specific timestamp, the greater the potential payoff to short-term steering. Conversely, smoother pricing references and longer resolution horizons can dampen that incentive structure.

Broader implications as prediction markets expand

The paper’s relevance may extend beyond crypto-native venues. It notes that traditional trading venues have proposed “event contracts” tied to asset prices—signaling that settlement mechanics will matter even as prediction markets move into more regulated environments.

That expansion is already happening alongside intense legal scrutiny in the United States. Cointelegraph previously reported that several US states have challenged prediction-market companies including Kalshi and Polymarket, while the Commodity Futures Trading Commission has argued that federally regulated event contracts fall under its “exclusive jurisdiction” rather than state gambling laws. The dispute is now moving through federal courts, with observers noting that conflicting appellate decisions could ultimately lead to a role for the US Supreme Court in determining whether states or the CFTC have primary authority.

At the same time, activity continues to grow. Prediction markets recorded record trading volumes in June, fueled by the expanded 2026 FIFA World Cup. According to DefiLlama data cited in the original reporting, Kalshi processed about $9.4 billion in trading volume during June, while Polymarket International handled roughly $4.3 billion.

World Cup winner markets have since generated more than $5.4 billion in combined trading volume, with Polymarket processing about $4.25 billion and Kalshi about $1.2 billion, based on data from the platforms at the time of writing.

As market interest accelerates—especially in short-duration contracts—the paper’s message becomes more urgent: regulators and designers may need to focus on settlement architecture, not just on categorizing whether prediction markets should be permitted.

For traders and builders, the next thing to watch is whether venues adjust contract durations, adopt averaging-based settlement (like TWAP), or otherwise change pricing feeds to reduce manipulation incentives—particularly as more prediction markets emerge with quickly resolving, price-linked settlement rules.