The 4 truths behind Polymarket LP market-making incentives and the hidden fee traps

_Original author: shtanga0x & _securezer0

Compilation | Odaily Planet Daily_ Wenser_

Editor’s note: Recently, on the X platform, posts related to Polymarket’s LP incentives for NCAA “March Madness” have nearly flooded the timeline. At the same time, Polymarket official members revealed that they would announce significant news next Monday, with the community speculating it may involve funding or token issuance information.

After the SEC and CFTC in the U.S. cleared the hurdles for crypto platform airdrops through the five-part test, POLY has become “the last hope for many” for profit, and LP market making may become one of the key indicators for airdrops.

In light of this, Odaily Planet Daily will provide a more comprehensive perspective for Polymarket users by borrowing the positive and negative viewpoints of two analysts on LP market-making incentives. Below is the compiled content, with some information edited.

Positive Viewpoint: The Four Categories Behind Polymarket’s LP Incentive Plan

Recently, Polymarket’s incentive mechanism has undergone a low-key upgrade, shifting its focus to liquidity providers (LP). For the past few years, the platform has implemented a “zero trading fee” strategy, but since the beginning of this year, it has quietly introduced transaction fees for specific betting events while launching two major market-making reward programs.

On the surface, the collection of trading fees seems disadvantageous to trading users, but in reality, it addresses the core structural pain point of prediction markets—the liquidity problem.

The new fee structure aims to fund incentive projects, rewarding users who provide limit orders and maintain order depth. As a result, both Polymarket and its users benefit from: narrower spreads, richer order books, and better trading experiences—especially in the high-frequency crypto market.

Its promotional path is also very clear, showing a trend from singular to diversified:

• January 2026: 15-minute Crypto market
• February 2026: Expanded to 5-minute Crypto market + NCAAB college basketball + Serie A league
• March 6, 2026: Expanded to all Crypto markets (covering 1H, 4H, daily, weekly events)

Based on the above information, this article will detail how the new fee and reward systems work—and why the fees paid + rewards earned may become potential anti-sybil indicators in the POLY airdrop. This is not a simple monetization operation, but rather Polymarket is demonstrating through action that what it truly desires is liquidity, not volume-farming bots.

Part I. Comprehensive Analysis of the New Taker Fee Mechanism

The vast majority of Polymarket markets remain completely free. Deposits, withdrawals, and transactions (for most event markets) still incur zero platform fees.

Transaction fees currently only apply to the taker side and cover three types of markets:

• All Crypto rise/fall markets (15min, 5min, 1H, 4H, daily, weekly, etc.)
• NCAAB (U.S. college basketball league)
• Serie A (Italian football)

The key point is that taker fees only take effect for markets created after the fee activation date, and existing betting events are unaffected.

The fee formula is unified_ (where C = transaction chip quantity, p = chip price/market probability, fees rounded to four decimal places, with a minimum fee of_ 0.0001 USDC_):

The effective fee rate follows the symmetric probability curve:

• When the probability approaches 50% (highest uncertainty of outcome), the fee is the highest;
• When the probability approaches 0 or 1 (higher certainty of outcome), the fee approaches 0.

For example, in a $100 Crypto market transaction:

• p=0.50 → transaction fee (fee) is approximately $0.44;
• p=0.10 or 0.90 → transaction fee (fee) is approximately $0.02.

The probability curve for sports events is similar, but the midpoint (around 50% probability) incurs slightly higher fees, with the fee structure specifically as follows:

• Buy: Fee deducted from chip share;
• Sell: Fee deducted from USDC funds;
• Market-making incentives paid in USDC.

It is worth mentioning that the Polymarket platform does not retain the entire fee pool, with a fixed percentage of fees (20% for Crypto markets, 25% for sports betting events) returned directly to LPs. _ (Note: The Polymarket U.S. compliant platform has a simple 0.01% fixed fee. This analysis only discusses the global CLOB platform, which has introduced a new fee system in 2026. _)

Part II. Market Maker Incentive Plan (Limit Order Execution Rewards)

This part of the incentive only covers markets that have charged taker fees. This means that only limit orders that are taken by traders can receive corresponding rewards; simply placing an order that doesn’t execute does not count.

The calculation of the reward amount is the same as the fees for takers. Each participant’s reward is proportional to their trading volume, and the total prize pool consists of a portion of the collected fees (20% for Crypto markets, 25% for sports betting events).

Competition only occurs in specific betting events, and LP orders only compete with other LPs in the same liquidity pool.

Daily incentives are sent directly to the corresponding wallet address in USDC.

Part III. Liquidity Incentives (Idle Order Incentives)

The second set of incentive systems is provided by the Polymarket platform and applies to all betting events (including those that charge no fees).

The core distinction is that: no order execution is required, simply providing liquidity by placing orders on the order book can earn money.

Each betting event defines several parameters that determine eligibility:

• Maximum incentive price difference (e.g., ±4 cents)
• Minimum order quantity
• Daily total reward pool

The platform samples the order book every minute and records 10,080 snapshots per week.

The reward calculation formula is super detailed:

1. Distance Score (Quadratic Equation)

Where,

V - Maximum incentive spread

s - Distance from the midpoint

Orders close to the midpoint score exponentially higher.

2. Bilateral Score (YES/NO Complementary Structure)

Buy and sell bid orders (bid) and ask orders (ask) are scored separately, considering the complementary structure of Yes/No markets.

3. Q-Value Minimization Adjustment

Betting events providing liquidity at both ends of the order book score higher.

Single-sided quotes will be penalized unless the market probability is close to 0 or 1.

4. Final Score

All LP scores will be normalized and aggregated over time to determine each participant’s proportional share in the market reward pool.

Rewards will be distributed in USDC at midnight UTC, with a minimum payout of $1.

Currently, users can view active reward betting events and individual earnings in real-time at polymarket.com/rewards. The incentive spreads are highlighted in blue on the order book interface, and users can also refer to the Polymarket official documentation.

At present, single-sided orders can still earn points (but at a significant discount), while double-sided quotes are prioritized for incentive points. Rewards will be calculated individually for each betting event. There is no cross-event calculation. In practice, this system rewards traders who maintain tight spreads and balanced liquidity near the market midpoint, enhancing the trading experience for all users.

Part IV. Sponsored LP Incentives

The third mechanism allows anyone to directly provide LP incentives to specific markets using USDC, attracting LPs to participate in market making. Sponsors can deposit or withdraw funds at any time, and unspent funds will be automatically returned.

The rules of this mechanism are identical to those of the liquidity incentive plan—simply placing orders is enough, no execution required.

A typical case is the betting event “Will Jesus Christ Return Before 2027?” where a user on a certain platform invested $70,000 as LP incentives in February, now earning around $57 per day in liquidity incentives, making this event one of the deepest betting events on the platform. This mechanism allows the community to actively promote liquidity in any betting event without waiting for Polymarket to take action.

Part V. POLY Airdrop’s Strongest Anti-Sybil Indicator

At first glance, Polymarket seems to just need more traders.

However, if most users rely solely on market orders, the platform will soon face liquidity issues.

Polymarket does not depend on centralized market makers; therefore, if there are insufficient limit orders, the order book will become sparse.

In this case, it becomes difficult to avoid excessive slippage when buying, selling, or executing large orders, leading to sudden increases in fees.

Polymarket does not need volume-farming bots; it needs LPs that provide real value.

Previously, everyone focused on boosting trading volume, believing that high trading volume was the key to obtaining airdrops. However, the new fee structure and reward plan suggest a different incentive model—what matters is not just trading volume, but participation in betting events that generate fees and require liquidity. In other words, the platform rewards targeted LPs, not just passive limit orders.

The reward distribution formula effectively reveals the type of liquidity that Polymarket values most. The scoring system evaluates:

• Proximity of orders to the midpoint
• Order size
• Balance between buy and sell prices

Thus, rewards become a direct measure of how a trader’s liquidity contributes to the platform’s value. If traders consistently earn rewards, it indicates that their orders are actively enhancing market liquidity and execution quality. Here are examples of potential incentives for market participants:

• Will the Arctic sea ice extent reach its maximum this winter? —Exists for 3 months, trading volume under $20,000, liquidity reward only $9;
• Will Bitcoin reach $75,000 in March? —Has been active for two weeks, trading volume of $3 million, liquidity reward of $142;
• Bitcoin rise/fall - 15 minutes —Covers hundreds of betting events, daily trading volume of several million dollars, daily fees of about $10,000, liquidity reward $2,000.

Compared to specific betting events, the truth revealed by the data is more critical—relative to simple trading volume metrics, taker fees and earned liquidity rewards are harder to manipulate artificially. Systematically earning market-making incentives requires capital, risk management, and ongoing presence, which significantly diminishes the advantages of profit-seekers and benefits genuine market participants.

Conclusion: Taker Fees and LP Incentives May Become Key Indicators for POLY Airdrops

Future POLY token distribution will likely depend not only on trading volume but also on the taker fees paid and LP rewards earned. These indicators are transparent, measurable, and highly aligned with platform demands. In this model, rewards are not tied to inflated trading volumes but rather to contributions that genuinely optimize the platform’s trading experience: liquidity, stability, and efficient price discovery.

In other words, those who perform best as LPs are the most valuable users. The most hardcore Polymarket players are never the ones with the highest trading volume, but rather the LPs that cultivate the deepest liquidity on the order book.

Additionally, Polymarket LP market-making strategy: “Now is the best time to interact with Polymarket (with exclusive tutorial strategy attached).”

Of course, differing opinions always exist in the market. Some believe that Polymarket’s LP incentive plan appears to be “spending money for liquidity,” but in reality, it is a profit-making trap set for LP users. Let’s hear the opposing viewpoints.

Negative Viewpoint: Polymarket’s LP Incentives May Be a Platform Scam? Are LPs Really a “Paying to Lose” Trap?

Regarding Polymarket’s recent LP incentive plan, arbitrage traders and Polymarket/Kalshi bot players securezer0 directly referred to the many KOLs in the community hyping “Polymarket Rewards Farming” as a massive psychological warfare, pointing out that this is a collective hype orchestrated by the platform directly footing the bill or heavily incentivizing KOLs.

The Truth About LPs: Another Form of “Paying to Lose”?

Several LPs candidly stated: The current LP mechanism of Polymarket is essentially “paying money to lose.”

Where does the problem lie? The leaderboard directly counts LP rewards into profit and loss data but fails to mention one critical concept—LP erosion.

When your position is executed unilaterally, it often cannot be sold at a reasonable price, or may not be sellable at all before the betting event settles; this portion of capital loss is systematically concealed by the platform. The real ROI data is far below the surface numbers, and for most LP participants, profitability is negative. They are merely hopeful that the POLY airdrop can cover their losses—this is not an arbitrage incentive plan, but a platform faith trade.

Why Professional Market Makers Are Reluctant to Enter?

Professional market makers generally avoid Polymarket LP market making, with one core reason: The risk of insider trading is real.

Both Polymarket and Kalshi have to exchange equity for liquidity to entice professional market makers to the table—this in itself indicates a problem.

Effective LP operation requires a highly complex automated risk control system. That myth of “low threshold, high return” for LPs only holds true if Polymarket continues to pour substantial funds into subsidizing liquidity rewards—yet this path, in the long run, is simply unsustainable.

The Platform’s Real Dilemma: Needing to “Create” Millions of Dollars Daily Out of Thin Air

Insufficient liquidity is the primary driving force behind Polymarket gradually opening the fee switch.

To maintain liquidity rewards for various betting events and keep more USDC liquidity on the platform, Polymarket needs to consume millions of dollars daily to sustain trading depth. If a better solution cannot be found, the platform has no choice but to charge fees on every transaction, using this revenue to sustain investors and market makers.

Once comprehensive fees are imposed, ordinary users will find themselves in an extremely awkward position—because in that case, traditional sports betting platforms may actually become more cost-effective, for the following reasons:

• Overall rates yield equivalent odds;
• Traditional platforms still offer cashback and cash incentives;
• The rules are clear and offer regulatory protection;
• Insider traders risk account bans or even imprisonment.

Three Truly Viable Solutions: Fixed Fees, POLY Liquidity Pool, and Charging for Expanded Products

Rather than drinking poison to quench thirst, it’s better to cut to the root: target the vampires, not the users. Charge fees to those arbitrage bots that extract USDC from real users. After all, these bots are the source of liquidity pollution. Specifically, the following methods are proposed:

Charge a fixed fee of 1% only on profits, that is charging only on the net gains of the sell price minus the principal, keeping the principal intact, and not harming the user trading experience.

Build a native liquidity pool with POLY tokens. Programmatically provide liquidity for each betting event at the protocol level, deeply binding the token economy with liquidity supply.

Charge for expanded products instead of core products. Cross-market bets, derivatives, leverage—these are natural fee scenarios, and making changes here will not harm the fundamental user experience.

Currently, Polymarket’s business moat still needs strengthening. Zero fees and better odds are the most important value anchors that distinguish it from traditional betting platforms. Abandoning these two points for short-term revenue is tantamount to self-destruction.