Author: Will Owens, Galaxy Digital research analyst; Source: Galaxy Digital; Compiler: Shaw, Golden Finance

Strategy sold Bitcoin for the first time since 2022. The volume of this sell-off was so small that it was almost negligible. But the settlement dispute surrounding a $301 million Polymarket contract is far from trivial.

A routine corporate announcement has evolved into the prediction market’s most valuable practical test of the platform’s settlement mechanism since last year’s Zelensky dress issue (a transaction of $237 million).

What happened

Polymarket has launched a periodic rolling prediction target: "Whether Strategy sells any amount of Bitcoin before X day". This product consists of multiple contracts marked with deadlines: If Strategy sells any BTC before 23:59 US Eastern Time on the date marked on the contract, the contract settlement is "Yes", otherwise the settlement is "No". The platform rules stipulate that: Strategy’s official disclosure information + on-chain data are the primary basis for settlement, and unanimous reports from authoritative media serve as alternative sources of evidence.

Before this Monday, the settlement result of this contract was "No" for a long time. The company run by Michael Saylor has always only hoarded coins and never sold them, so this type of contract has never caused settlement disputes before.

But on June 1, Strategy filed an 8-K regulatory announcement disclosing that the company sold 32 Bitcoins between May 26 and May 31. The average transaction price of this sale was US$77,135, with a total realization of approximately US$2.5 million, and the proceeds will be used for preferred stock dividends. This is the first time the company has publicly disclosed its Bitcoin holdings reduction operation since December 2022, breaking the market's inherent perception that "Michael Saylor only hoards but does not sell coins." However, the amount of reductions is minimal: compared to the company's total Bitcoin inventory of 843,706 pieces, it accounts for only 0.0038%.

The delivery time of this sell transaction obviously falls within the contract limit period (before May 31).

Polymarket's "yes" odds for the contract surged from 10% to about 80% after the news broke. A market trader bought 700,000 "yes" contract chips at a price of about $0.76 each. He said in a long post on the X platform that this was a risk-free arbitrage opportunity. (Each contract can be redeemed for 1 US dollar of stable currency if the prediction is fulfilled, and the value will return to zero if it fails.)

But at 1pm ET, Polymarket officially released additional instructions. The platform stated:There is no valid information from Strategy’s official announcement, on-chain data or authoritative media reports that can confirm that Strategy completed the Bitcoin sales during the contract validity period; supporting information that was implemented after the contract expiration date will not be used as a basis for settlement.

Just seconds after the news was released, the“Yes” contract price plummeted below $0.01.

According to Polymarket's normal procedures, a trader deposited a margin of approximately US$750 and requested that the contract be settled as "No"; then another trader paid an equal amount of margin and filed an objection to the settlement conclusion.

The platform once again asked for "No" settlement, and the ruling was once again rejected by a second appeal.

This target entered the final review process. After 48 hours of review, the final settlement result of the contract was "No" for the third time, and this ruling was the final conclusion.

As of 2:30 pm Eastern Time on June 3, the top ten position holders on both the long and short sides held a total of approximately 120 million contract chips.

Users with large positions in the "Will Strategy sell Bitcoin before May 31st" contract on the Polymarket platform

On Wednesday afternoon, although there was conclusive filing information confirming that the relevant Bitcoin transaction was completed within the contract window, the “no” quote for the forecast contract that expires on May 31 was still as high as approximately $0.997.

Original text of the rules vs. additional explanations from the platform

The original settlement terms of the contract are based on the actual occurrence of events, and the terms are clearly stated: as long as Strategy "sells any amount of Bitcoin" before the deadline, the contract will be settled as "yes". The terms do not require that the relevant sales must be disclosed before the deadline.

This is the core contradiction of this dispute. The bullish side (select “Yes”) claims: The contract rules clearly list Strategy’s official disclosure information as the primary basis for ruling, and the regulatory documents submitted by Strategy indicate that the transaction period for 32 Bitcoins was from May 26 to May 31, which falls within the validity period of the contract. The short (select “No”) side believes: There is no public information to support the sell-off before June 1, and there is no valid certificate for settlement when the contract expires.

In short,is the settlement based on the date when the asset transaction occurs or the date when the information is disclosed to the outside world? The original contract provisions were based on actual events, but the platform’s subsequent supplementary announcement was changed to be based on the disclosure and verification time. Traders generally believe that inconsistent statements are equivalent to the platform modifying the rules after the fact. From an industry analysis perspective, we also hold the same view (this opinion does not constitute legal advice).

This incident is not an accidental exception

Compared to a single settlement result, the platform’s interpretation logic of rules has a greater structural negative impact. Investors with heavy positions in the "yes" contract publicly accused the platform of deliberately waiting until the 8-K financial report was released so that insider funds could take advantage of the good news and sell chips to retail investors who followed suit. Then they changed the rules and settled with "no" to harvest the long parties. Well-known prediction market trader Domer (who appeared on the "60 Minutes" Polymarket special program) and Adam Back, a well-known cryptographer in the Bitcoin field, all came out to express doubts. The entire crypto community has reached a consensus on Twitter: When doing predictive trading on Polymarket, in addition to predicting the event itself, you also have to bet that the platform will not temporarily tamper with the rules when you are about to make a profit.

The settlement of the Polymarket contract relies on the Optimistic oracle mechanism of the UMA protocol. If objections occur repeatedly, the dispute will be escalated to the UMA data verification mechanism and adjudicated by token weight voting. The voting window period is 48 to 96 hours. Analyst Eric Conner calls this mechanism a “buggy oracle system.” A survey released by the Wall Street Journal in May showed that among most disputed objects in Polymarket, more than half of the UMA votes came from the top ten holding wallets; at least 60% of active voters could correspond to Polymarket real trading accounts; in about one-fifth of the disputed cases, the voters who participated in the ruling themselves held relevant profit and loss positions in the contracts involved. In 2026, Polymarket has accumulated more than 1,150 disputed subjects, exceeding the total in 2025.

It is worth mentioning that the contracts expiring on June 30 and December 31 in the same series are undisputed and ultimately settled as "yes" with a probability of about 99.9%. The root cause of this turmoil is simply that the contract deadline is just before the company's financial report disclosure date.

Our point of view

The Galaxy Research team has always believed that prediction markets are an excellent tool for mining information and hedging risks. As announced on Tuesday, our colleagues have established an OTC prediction market trading desk. Especially during the 2024 U.S. presidential election, Polymarket fully demonstrated the information value of the prediction market, and its accurate results eclipsed traditional polling agencies and established media.

However, this settlement dispute over Strategy-related contracts has revealed that settlement credibility is the core cornerstone for prediction markets to realize the original intention of the product.

All traders who bought the “Yes” contract predicted that the facts were correct, but the platform judged that they all suffered losses. This in itself is a mechanism failure.

Aside from the underlying rules of the oracle, the objective facts are conclusive: Strategy completed the Bitcoin sell-off before May 31. When multi-party traders make correct predictions but lose money, this is a failure of the product mechanism.

The essence of the prediction market is to price the probability of future events. Once the settlement result is contrary to the objective facts, the market will no longer judge the event itself, but will instead speculate on how the gaming platform will tamper with the interpretation rules afterwards. The two are completely different game logics, and the latter has no market value.

Strategy's regulatory filings clearly confirm that the selling fell within the contract window. This decision was “No”, relying only on an implicit clause that was never stated in the original contract: the relevant facts must be publicly disclosed before the contract deadline, and this additional requirement was only temporarily proposed by the platform after large amounts of money were placed for betting. From a rational point of view, this logic is not unreasonable (if there is no verifiable public information when the contract expires, settlement cannot be implemented), but this restriction is not written into the initial contract and can only explain the results and cannot excuse the violation.

This change in caliber stems from the supplementary instructions issued by Polymarket, but its operation method is not to directly force the settlement to be overturned. According to the platform's own terms, Polymarket is a non-custodial platform, and the platform does not have the right to directly cancel the settlement result after UMA finalizes it (it has only been handled in the form of refund in the case of Barron Trump-related disputes in 2024). The platform characterizes the supplementary instructions as non-binding “supplementary reference information” and only recommends UMA voters to refer to it. The final decision-making power belongs to UMA token holders.

However, in practice, this division of powers and responsibilities is superficial: UMA voters acquiesced that Polymarket’s supplementary instructions have contractual validity, and have never overturned the platform’s supplementary specifications in the past. The ruling prioritizes following the platform’s new regulations and literal interpretations, rather than the general market perception. Therefore, Polymarket does not need to directly tamper with the oracle results. In essence, it relies on new regulations to guide the oracle's decision direction. Most of the oracles follow the platform's guidelines. Coupled with the past cases that are scattered in community archives and Discord historical posts that most traders cannot access, the actual contract execution rules are completely determined by the platform’s subsequent supplementary explanations. This set of operations is the platform's regular mode of handling disputes and is by no means an occasional exception. Traders who were injured in many well-known disputes have publicly complained about unfairness.

Polymarket founder and CEO Shayne Coplan once touted the platform as "the most accurate information pricing tool for mankind today", but settlement that deviates from objective facts has become a fatal survival risk for the platform. If you want to correct the loopholes, it will harm the benefits of vested interests, so there are many obstacles to implementing the reform.

Reasonable rectification plan: The settlement standard will be locked when the target goes online. Each contract will clearly indicate whether it will be based on the date of fact (event type) or the date of information disclosure (disclosure type). At the same time, evidence collection standards will be defined; after the bet is opened, the settlement standards shall not be modified with supplementary explanations. For large-scale disputes, the token-weighted voting mechanism should be stripped away, and at least voters holding positions in the contract involved should be required to actively avoid and not participate in the ruling.

If the underlying result can be verified by objective evidence such as financial reports, on-chain transfers, and market data sources, deterministic settlement will be adopted and voting will be abandoned. The above rectification ideas are not created out of thin air. All licensed compliance settlement systems in the world have already implemented similar rules. However, this solution conflicts with UMA’s underlying design concept of permissionless and token governance. The latter is the foundation of UMA’s low-cost and high-efficiency operation. Therefore, the platform has not been optimized for a long time.

This leads to Polymarket’s most difficult compliance problem:The existing mechanism is completely unable to adapt to the regulatory requirements of the U.S. Commodity Futures Trading Commission (CFTC). Polymarket is no longer limited to offshore crypto trading platforms: In July last year, the platform spent US$112 million to acquire licensed exchange and clearing institution QCX, and spun off Polymarket US for the United States, which operates independently of the main station on the global chain. In November of the same year, Polymarket announced that it had obtained a revised designated license from the CFTC and was allowed to transform into a federally regulated designated contract market (DCM). The platform said at the time that the license would help it officially return to the U.S. market under a compliance framework. According to the Commodity Exchange Act, designated contract markets must abide by legal guidelines for fair settlement and avoidance of conflicts of interest. However, the current token voting oracle (the adjudicator can hold positions in the contracts involved and participate in voting) completely fails to meet the rigid regulatory standards.

On the one hand, it operates a compliant exchange business that is strictly regulated by the U.S. federal government, and on the other hand, it continues to use an oracle system that relies on temporary new regulations to influence decisions. The two sets of rules cannot coexist separately for a long time. Either switch to a compliant centralized settlement structure that is consistent with the competing product Kalshi, which is a disguised admission that native encryption oracles cannot meet regulatory requirements; or the current oracle model is in direct conflict with regulatory regulations.

Building a set of fair and compliant decentralized oracles is a long-term vision, but judging from this incident, the current system is far from meeting the qualified standards.

The compliance platform Kalshi has avoided similar problems from the beginning: it is regulated by the CFTC, centralized and unified settlement, and will never leave disputes over the timing of financial report disclosure to token holders to vote.

Fuzzy settlement rules will continue to amplify risks as transaction volume increases. The oracles that are directed by wallets with large positions and advertised as "searching for the truth" have long deviated from the original intention of seeking truth.

The legal impact left by this incident will far exceed the 32 Bitcoins that triggered the whole incident.