Quantitative traders lamented the end of the gravy train as Polymarket quietly ended hefty penalties for liquidity-robbing “taker” orders. For highly sophisticated market makers, its 500 millisecond market adjustment period gave it superpowers over slow traders.
Unfortunately for them, Polymarket has ended their time incentives.
Unsurprisingly, funds were previously flowing from Polymarket and Karshi promoting short-term binary options on Bitcoin price ($BTC) to the everyday speculator.
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The exchange features 5-minute and 15-minute betting markets on the Bitcoin price ($BTC). Each of our homepages lists these markets in the top three positions, and these markets receive a lot of media coverage.
These so-called prediction markets are determined based on price data from Chainlink and involve high risk for all but the most sophisticated traders. One of the risks buried in the technical documentation was the ability for market makers to adjust quotes to ensure they received the most favorable price.
Incentivize manufacturers to attract funds from polymarket users
According to multiple market observers, Polymarket has quietly eliminated the 500 millisecond (0.5 second) taker price delay.
Manufacturer Use limit orders that do not fill immediately, such as a buy price below the current ask price. takerin contrast, use immediately executable limit orders, such as market orders, or limit buy orders at a price higher than the current ask.
A traditional “Level 2” or Depth of Market (DOM) estimate would look like this: Manufacturer Listed above and below the final price of the asset. Manufacturer limit buy/sell orders remain pending, ranked by price, because they cannot be executed immediately against other orders.
takerIn contrast, its orders are always executed instantly using standing orders from manufacturers, creating their respective market-clearing prices.
Historically, exchanges have rewarded manufacturers by offering various discounts to encourage their participation. Trading venues with consistently deep or “liquid” DOM quotes across trading pairs will gain more business from traders concerned about their ability to easily enter and exit positions with minimal slippage.
Penalties for takers and rewards for makers vary by exchange, but Polymarket has a history of penalizing takers for 500ms price delays.
Quant didn’t need a speed bump
However, some traders discovered its sudden and quiet removal this month. “There are rumors that the speed bumps in the crypto market are gone. No announcements, no change history, nothing,” one observer wrote.
For quants and arbitrageurs, Polymarket’s 5-minute game now trades 500 milliseconds faster. These trades can also be hedged using Kalsi’s 15 Minute Binary Options and hundreds of other options. $BTC proxy.
For context, the maximum taker transactions in 5-minute increments were only 600. Currently, the number of possible trade combinations appears to be exploding into the thousands or even millions, limited only by the speed of connections and calculations.
“With speed bumps gone, latency is now the only moat,” someone pointed out.
Of course, latency is a double-edged sword. The most advanced co-located arbitrage broker with the fastest rate of quote updates compared to price $BTC Chainlink oracles and other exchanges can now also enjoy amateur order flow from slower competitors.
Many other traders also agreed with this implication.
“Before, money was basically free.” One trader observed a substantial half-second incentive that allowed manufacturers to slowly update quotes with relative ease in computer time. “They did that to invite the manufacturers. Now the manufacturers are there and they take it away, but they still give you a rebate on the fees.”
He predicted another change in the future as the elimination of all incentive programs for polymarket quantitative manufacturers. “Next time there will be no commission rebate and you will also be paid on orders from manufacturers.”
