Why Is Polymarket Centralised?¶
Introduction¶
Polymarket settles trades on-chain but centralises its trading layer.
What This Centralisation Achieves¶
This centralisation solves four structural issues:
- Complement reconciliation across YES and NO tokens
- Capital-efficient liquidity projection
- Continuous limit order management
- Gasless market order execution
In this article, we explore why these issues arise and why they require coordination above the settlement layer.
A Simple Binary Market¶
The Core Primitive¶
Consider a market:
Will Event X happen?
On Polymarket, $1 can be split into two tokens:
- 1 YES
- 1 NO
Together they equal $1.
Settlement Logic¶
At resolution:
- YES pays $1 if the event happens, otherwise $0
- NO pays $1 if the event does not happen, otherwise $0
YES and NO are separate tokens.
Four On-Chain Trade Directions¶
Mechanical Distinction¶
Because YES and NO are separate tokens, there are four discrete on-chain trades:
- Buy YES
- Sell YES
- Buy NO
- Sell NO
These are mechanically distinct.
Economic Overlap¶
However:
- Buy YES for c is economically equivalent to Sell NO for 1 − c
- Buy NO for c is economically equivalent to Sell YES for 1 − c
Why?
Trade Equivalence¶
Starting Portfolio¶
Start with the portfolio:
| Stage | Cash | YES | NO | Payout if YES Happens | Payout if NO Happens |
|---|---|---|---|---|---|
| Initial | 1 | 1 | 1 | 2 | 2 |
| Buy 1 YES for c | 1 − c | 2 | 1 | 3 − c | 2 − c |
| Sell 1 NO for 1 − c | 2 − c | 1 | 0 | 3 − c | 2 − c |
Identical Economic Outcome¶
Both trades produce identical final payoffs.
Buying YES for c is economically equivalent to selling NO for 1 − c.
But they are expressed as trades in different tokens.
That difference matters for matching.
1. Complement Reconciliation¶
The Matching Problem¶
A naïve token-based orderbook matches identical instruments:
- Buy YES matches Sell YES
- Buy NO matches Sell NO
But economic exposure crosses token boundaries.
Buy YES at price c
Sell NO at price 1 − c
As shown above, these represent the same economic change.
Why This Requires Coordination¶
Matching therefore requires recognising this symmetry and translating price and direction.
Currently, there is no on-chain implementation of this complement reconciliation.
Polymarket’s CLOB performs both matching and exposure normalisation off-chain.
2. Liquidity Projection¶
Conditional Liquidity¶
A market maker with $100 can place limit orders across many binary markets simultaneously, thus supporting far more than $100 of quoted liquidity.
These orders are conditional.
Capital is only consumed if an order is filled.
Until execution, they are signed commitments.
Solvency at Match Time¶
This allows liquidity to be expressed across multiple markets at once, with solvency enforced at the moment of match.
3. Gasless Limit Order Management¶
Off-Chain Order Lifecycle¶
Limit orders are signed messages stored off-chain.
They can be:
- Placed
- Modified
- Cancelled
Without sending a transaction.
Execution Boundary¶
Only executed trades are submitted on-chain.
This enables continuous quoting and active repricing.
4. Gasless Market Order Execution¶
Immediate Matching¶
Market orders are also submitted gaslessly.
The matching engine pairs them against resting liquidity immediately.
On-Chain Settlement¶
The resulting trade is then settled on-chain.
Summary¶
Polymarket’s off-chain trading layer instantiates four capabilities:
- Complement reconciliation
- Liquidity projection
- Gasless limit order management
- Gasless market order execution
Polymarket achieves these capabilities through centralised coordination.
PredictionSwap decentralises them by adjusting the on-chain representation of state and exposure.