Summary of Polymarket Profitability Methods

After studying the web3 binary prediction market for a few days, the purpose of the research is to make money. Based on the research from a few days ago, today I will conduct an in-depth analysis of the ways to make money with poly.

On Poly, the yes + no of an event always equals 1u, meaning the probability is the price. The lifecycle of a binary prediction event token includes three processes: minting, trading, and redeeming.

When the platform first releases a binary prediction event, there are no circulating tokens available for trading in the market. Market makers can spend 100u to mint 100 yes and 100 no tokens on the platform, creating circulating tokens available for trading. After the event result is announced, if the result is yes, then no will go to zero, and the smart contract will redeem the 100 yes tokens, each worth 1u, thus ending the token's lifecycle.

( splits 1u into 1 yes + 1 no button on poly )

The above is just a simplified process; in fact, anyone can mint one yes and one no by putting in 1u at any time during the event cycle, allowing for buying and selling to profit from the price difference, and redemption can be done at any time.

Therefore, the first way to make money on poly is by being a market maker. Earn the spread through buying and selling + earning from the platform's liquidity incentive program. After each binary event concludes, poly charges a 2% profit from the winning side, most of which will go directly to the market makers providing liquidity for that market, while the poly platform takes less than 0.5% of the profit as operational settlement. At the same time, poly has also established a liquidity incentive program.

The second way to make money on poly: become a high-cognition player in a certain field. Users who are relatively specialized in a certain area can earn profits from users with lower cognition by achieving a prediction success rate of over 50%, commonly known as profiting through high cognition + professional knowledge.

There is another way to make money: arbitrage. The essence of arbitrage is to correct erroneous markets, because the probability on poly is the reason for the price. If it is greater than 1(, for example 1.1), you can mint 1 yes + 1 no for 1u, and then sell it in the market to earn 0.1u. If it is less than 1, for example, if yes equals 0.8 and no equals 0.1, you can spend 0.9u to buy one yes and one no, and then combine 1 yes + 1 no into 1u, ultimately earning 0.1u.

After studying for a few days, I have a rough understanding of how to make money in the prediction market and its basic mechanisms. However, I feel that to make money in this market, apart from high-cognition player strategies, other methods require the use of scripts. Therefore, in the coming days, I may study how to use its API for trading.

In summary, there are a total of four ways to make money on Poly: market makers, high-cognition players, arbitrage players, and neimu players. Which one do you belong to?