Hardcore breakdown of Polymarket fee formula: How does an extreme fee rate of over 90% come about?

Original | Odaily Star Daily ( @OdailyChina )

Author｜Azuma ( @azuma_eth )

Polymarket has suddenly fallen into a fee controversy.

Multiple community users found last night that when trading on Polymarket, they were charged an abnormally high fee, and the shares or returns they actually received have clearly shrunk compared with before.

Overseas user Frosen (@frosen) even posted screenshots showing that they intended to place an order for 100 shares in the “Economy” category at a price of 0.1 cents, but Polymarket’s frontend only showed a potential winning return of $5.2 (normally it should be $100)—corresponding to an absurd fee rate of as much as 94.8%!

What’s going on here? Is Polymarket gone mad about money? According to Odaily’s findings based on Polymarket’s official disclosures and a community investigation, the direct cause of this unexpected situation is that Polymarket modified the fee formula on the platform last night.

In short, Polymarket changed the formula three times in a row last night:

• First was the “old formula”: fee = C × p × feeRate × (p × (1 - p))^exponent;
• Then came the first change, which caused the unexpected situation’s formula (the “abnormal formula” for short): fee = C × feeRate × (p × (1 - p))^exponent;
• After realizing the problem, Polymarket made a correction, resulting in the current version of the “new formula”: fee = C × feeRate × p × (1 - p);
• It should be noted that in all three formulas, C refers to the number of shares traded, p refers to the share trading price, and feeRate and exponent are variables.

How is the abnormal formula broken down, and how does the absurd 94.8% fee rate come about?

You don’t need to care too much about the math details. By comparing the “old formula” and the “abnormal formula,” it’s easy to see that the latter only removes one “ × p” (this is the multiplication sign, not the lowercase X) compared with the former—meaning it ends up multiplying by the shares price one fewer time.

Since all share prices on Polymarket are always less than $1, this will inevitably cause the overall fee to increase, and the lower the share price is, the more obvious the increase becomes because the formula misses one multiplication. When the share price is close to 0, a very ridiculous fee rate can appear.

As for how ridiculous the fee can get, it also depends on the same variable ^exponent that exists in both the old and abnormal formulas. Translated directly, ^exponent means “raised to the power of exponent.” This variable is mainly used to control how steep the fee curve is.

According to Polymarket official Mustafa, the abnormal formula from last night introduced exponent only into the “Weather” and “Economy” market categories (other markets set the parameter to 1 so you can ignore this variable). And according to overseas KOL Quant Chad (@Autonomous_Chad), the exponent parameter set for both of these major markets was 0.5.

Now let’s go back to Frosen’s case, plug in the relevant numbers into the abnormal formula fee = C × feeRate × (p × (1 - p))^exponent. We know C equals 100, meaning Frosen wants to place an order for 100 shares; p equals 0.001, meaning $0.001 (0.1 cents); exponent equals 0.5, meaning you perform one more power operation on (p × (1 - p)). The final fee rate is 94.8%.

If you just give it to an AI, you can reverse-engineer that the feeRate level at the time was 0.03, while also restoring the detailed formula calculation steps Polymarket used for that order.

In simple terms: Polymarket calculated that the fee that should be charged for that order based on the abnormal formula was $0.0948. But because Polymarket’s fee-charging method for buy orders is to directly deduct the corresponding value in shares—and at that time the shares price was only $0.001—you need to deduct 94.8 shares. So the number of shares Frosen ultimately received was only 5.2, and even if the predicted potential return was correct, it would still only be $5.2.

Polymarket’s remedy

Shortly after the abnormal fee issue appeared, Polymarket responded quickly and changed the formula to the current version: fee = C × feeRate × p × (1 - p). Compared with the abnormal formula, the new formula removes “^exponent”—which effectively raises the exponent parameter in the abnormal formula fee = C × feeRate × (p × (1 - p))^exponent from 0.5 to 1.

In the abnormal formula, the effect of ^exponent is to perform one more power operation on the dataset p × (1-p). In Polymarket’s actual operating conditions, the theoretical result range of p × (1 - p) is between “0.000999 and 0.25”—when p is closer to 0.5 (the share price is closer to $0.5), that dataset is closer to 0.25; when p is closer to 0 or 1 (the share price is closer to $0 or $1, with extremes being $0.001 and $0.999), that dataset is closer to 0.000999.

Within the “0.000999 to 0.25” range, regardless of the value, when the exponent parameter is increased from 0.5 to 1, it directly reduces the final fee result in the formula operation—thereby lowering the overall cost.

More importantly, this reduction has a more obvious suppressing effect on the abnormal high fee rates near extremely low prices—for example, when p × (1-p)=0.000999, under the new formula the fee is only about 3.16% of the fee under the abnormal formula, which is a drop of about 96.84%; and when p × (1-p)=0.25, under the new formula the fee is 50% of the fee under the abnormal formula.

As shown in Polymarket’s official documentation, after the new formula started being used, the fee tiers under extreme values in the “Weather” and “Economy” market categories have dropped to 5% at this time.

How do retail users avoid fees?

I know that most users are too lazy to look at the above formulas, but at the same time they’re also worried about Polymarket’s current fee issue.

In response, Mustafa mentioned in the official Discord: “If you’re worried about fees, you canfree of charge post limit orders, and after this new update, you can also get a 20%-25% market maker rebate (maker rebate)—which means that when your limit order gets filled, you’ll receive 20%-25% of the counterparty’s taker fee. In other words, not only is it free trading—you can even earn rewards by trading and providing competitive liquidity.”

So change your habits: try not to keep directly taking orders. Post more limit orders, and you can also tryusing Polymarket’s Split feature more, indirectly building a position by selling the shares on the other side through reverse-order posting.