jakiro
Author: danny; Source: X, @agintender
The characterization of prediction markets has sparked intense debate about their financial and gambling nature.This article attempts to analyze how Polymarket grafts its event contract (Event Contract) to the new binary options financial derivatives of the blockchain through its unique structure and mechanism, and avoids gambling factors.
Different from the traditional banker betting model, Polymarket uses P2P CLOB for matching and settlement, eliminating the traditional “banker advantage” betting factor.This model and structure not only gets rid of the “gambling component” and attracts professional market makers to provide deep liquidity, but also creates huge operating space including market rebalancing arbitrage and portfolio arbitrage.If there is a game, there will be disagreements – if there are differences there will be interests – and if there are interests there will be a market.
Beyond a gambling platform, Polymarket has become a “market platform” driven by professional capital that aggregates collective wisdom and conducts risk pricing.Decentralized Magic Crystal Ball”
1. Why not gambling?Mechanism qualitative: P2P transactions and the lack of “banker advantage”
1.1 Event Binary Options Contract: Concept Analysis
Polymarket’s core trading product is called an event contract, and its structure is similar to the binary options (Binary Options) model in the traditional financial market.The result share price for each event floats between 0.00 and 1.00, with a constant sum of 1.00.The price of a share directly reflects the market’s real-time probability of the event occurring.
The definition and structure of Binary Options
Binary options are a special type of derivative that get their name from their fixed, binary payout structure: when the contract expires, you either receive a predetermined fixed return (“in-the-money” or “out-of-the-money”) or receive nothing (“out-of-the-money” or “out-of-the-money”). Such contracts only involve directional predictions of events without involving leverage, margin, or complex settlement mechanisms, making them a simplified form of futures.
Integration of Polymarket event contracts
Polymarket’s event contract is a digital, decentralized implementation of this model:
-
Binary Question: Every market is structured as a YES/NO binary question.
-
Fixed payout: When an event is finalized, shares representing correct outcomes will be settled at a fixed settlement of $1.00 USDC; shares representing incorrect outcomes will be settled at $0.00 USDC.
-
Probabilistic pricing: The price of event shares purchased by users fluctuates between $0.00 and $1.00.This price is the market’s collective assessment of the probability of the event occurring, for example, if YES shares are trading at 0.36, it means the market believes there is a 36% probability of the event occurring.
-
Fully collateralized constraint: The YES share price plus the NO share price in a market “should” be equal to $1.00 USDC, ensuring the zero-sum nature of the market and full collateralization.
-
Judgment method: Use the blockchain’s oracle to judge the YES/NO results.
Therefore, Polymarket’s event contract is essentially a blockchain-based, fully collateralized binary option, no banker betting, which converts the collective judgment of future events into a tradable financial asset.
1.2 Different from traditional gambling model
Traditional gambling companies (such as sports betting) act as “bookmakers” or counterparties, actively betting against gamblers, and extracting high house edge/VIG from them to ensure long-term profits.Polymarket is a pure P2P exchange that only provides matching and settlement services (assuming that Polymarket does not provide market opening).The platform completes transactions by matching two traders with opposite views and does not hold any risk exposure to market outcomes.Its source of income is the transaction commission charged to the winner of the successful settlement of the contract.
This P2P structure gives traders a higher expected value, legally supports it to fall under federal derivatives regulation (Polymarket also acquired a financial derivatives license company in 2025), thereby avoiding the constraints of state-level gambling regulations.
2. Order book structure: professional market making and liquidity incentives
Polymarket abandoned the automated market maker (AMM/LMSR) model used earlier and switched toLimit Order Book (CLOB).
2.1 Professional operation space brought by CLOB
The CLOB architecture allows traders to set Bid and Ask via Limit Orders.This seemingly complex operation creates operating space and profit opportunities for professional market makers:
-
Earn the bid-ask spread: Market makers provide deep liquidity to the market by providing bilateral quotes between bid and ask prices, thereby earning the small difference between the bid and ask prices.
-
Position and Risk Management: The core responsibilities of a market maker include position management.They ship at high levels (sell) and receive orders at low levels (buy) based on their own probability models, manage market exposure by dynamically adjusting orders, and constantly push prices to what they believe to be the “true probability” level.
-
Liquidity rewards: To further incentivize market makers, Polymarket has implemented a liquidity reward mechanism that pays out daily rewards based on order competitiveness (how close the price is to the market midpoint) and size.
2.2 Hybrid architecture and on-chain settlement
Polymarket adopts a hybrid architecture and uses Off-Chain’s matching engine to achieve high-speed and low-latency order matching.At the same time, the final settlement and asset transfer of all transactions are settled On-Chain.All bets in the venue are settled in USDC.
3. Professional arbitrage strategy: the “invisible hand” of market efficiency
3.1 Market rebalancing arbitrage (Intra-Market Arbitrage)
This is the most basic form of arbitrage, which ensures that the market price meets the constraint of YES share price + NO share price = 1.00.
When the market price deviates, for example, the YES share price is 0.58, the NO share price is 0.40, and the sum is 0.98, the arbitrageur will immediately buy these two shares at a total cost of 0.98, and lock in a return of 1.00 when the contract is settled, thereby earning a risk-free profit of 0.02.
This arbitrage activity is market-drivenself-correcting algorithm, forcing the price to quickly return to 1.00.
3.2 Combinatorial Arbitrage and Multiple Logic Chains (Combinatorial Arbitrage)
This type of arbitrage takes advantage of the differences that exist between different events.logical or probabilistic association, such as mentioning the multi-chain logic between “the probability of the Federal Reserve cutting interest rates” and “the value of the dollar”, or the correlation between “the probability of the sharpshooter MVP” and “the probability of the MVP team winning the championship”.
When multiple, interconnected markets are priced inconsistently, arbitrageurs will eliminate this mispricing through hedging and trading across markets, thereby locking in portfolio profits.
3.3 Cross-platform hedging and regulatory arbitrage
Professional traders do use Polymarket as a hedging tool to hedge risks against traditional financial markets or other platforms, such as:
Traders can short the outcome of a political event on Polymarket (for example, by purchasing NO shares) while establishing hedging positions in traditional futures or options markets to protect their overall portfolio from the impact of the event.
Take advantage of the tiny price differences that can arise between Polymarket and other regulated competitors like Kalshi or traditional betting exchanges like Bet365, and buy and sell across platforms to lock in risk-free profits.
4. Conclusion
Polymarket’s CLOB structure and P2P trading mechanism make it functionally similar to the traditional financial derivatives market.It transforms collective beliefs about future uncertain events into tradable assets by providing a zero-sum, no-house-advantage trading environment.
Platform efficiency does not come from algorithms, but from the market game brought about by arbitrage – enforced by professional market makers and arbitrageurs through precise position management and multi-dimensional arbitrage strategies.therefore,Polymarket has transcended the category of “online gambling” and become a highly efficient, arbitrage-driven decentralized financial infrastructure for information aggregation and risk pricing..
Is the truth becoming clearer with each passing day?have no idea;
Can the market predict the future through sufficient gaming?Let us wait and see
Beyond a gambling platform, Polymarket has become a “new century magic crystal ball” driven by professional capital, used to aggregate collective wisdom and conduct risk pricing.
