Polymarket & Prediction Markets
A share that pays $1 if you're right and $0 if you're wrong turns every opinion into a price — and that price is a probability. This course takes you through Polymarket from the order book to the oracle, then arms you to find an edge against the crowd and size it without going broke.
Trading real-world outcomes on-chain — what a prediction market is and why its price IS a probability, how Polymarket works end-to-end (USDC on Polygon, $1 YES/NO share pairs, the CLOB order book, minting and merging), how markets resolve through UMA's optimistic oracle, calibration and the favorite–longshot bias, binary arbitrage, Kelly-sized bets on a binary, and the real risks.
Most markets price things; a prediction market prices something stranger and more useful — the probability a future event happens. Buy a share that pays exactly $1 if you’re right and $0 if you’re wrong, and the price (a penny to 99 cents) is the crowd’s probability: pay 62¢ for “YES” and the market is telling you it’s 62% sure. That one idea — price equals probability — turns betting on the world into a quantitative discipline you already have the tools for.
Here’s the arc, from order book to oracle to edge:
- Price equals probability — why a $1/$0 payout makes the price a forecast, and why a crowd betting real money aggregates scattered information sharper than any pundit.
- Inside Polymarket — the largest on-chain market end to end: settlement in USDC on Polygon, outcome tokens in complete $1 sets (one YES + one NO), minting a set from a dollar and merging it back.
- The CLOB — the central limit order book where YES shares trade, with its spread, depth, and slippage.
- Resolution — the part everyone underestimates: UMA’s optimistic oracle, where a proposer posts an outcome with a bond, a liveness window lets anyone dispute, and disputes escalate to a token-holder vote. Get it wrong and a “winning” share pays nothing.
- Calibration & the favorite–longshot bias — score the market like any forecaster: do events priced at 30¢ happen 30% of the time? Longshots run rich, heavy favorites run cheap.
- Binary arbitrage — the cleanest free lunch in the building: a YES and a NO redeem for $1, so any time they trade for less (or more), there’s locked profit — until fees eat it.
- Bayesian edge + Kelly sizing — form a probability the Bayesian way, compare it to the price to measure your edge, and size the bet with Kelly on a binary — knowing the edge is an illusion if you’re less calibrated than the crowd.
- The real risks — ambiguous resolution, oracle disputes, thin-book illiquidity, and the regulatory/geofencing reality.
This is an expert course: it assumes Bayesian updating (to form your probability) and Kelly sizing (to bet it) are already sharp. Bring them — every lesson cashes them out on a live, on-chain market where being right pays a dollar and being wrong pays nothing.
In this topic
- 1 What a Prediction Market Is Why a share that pays $1 if you're right and $0 if you're wrong makes its price an exact probability — outcome shares, price = implied probability, expected value, and how a crowd betting real money aggregates information into a forecast. 9 min
- 2 Inside Polymarket: Shares, Sets & the Order Book How Polymarket actually works end to end — USDC collateral on Polygon, outcome tokens that come in complete $1 sets, minting and merging a YES/NO pair, the central limit order book (CLOB), and how spread, depth and slippage move your fill price. 10 min
- 3 Resolution & the UMA Oracle Who decides who was right — how a Polymarket market resolves through UMA's optimistic oracle: a proposer posts the outcome with a bond, a liveness window invites disputes, a disputed market escalates to a token-holder vote (the DVM), the loser forfeits their bond, and winning shares redeem for $1. Plus the real danger of ambiguous resolution. 9 min
- 4 Calibration, Bias & Arbitrage Scoring the crowd and finding free money — calibration (do events priced at 30¢ happen 30% of the time?), the persistent favorite–longshot bias, and binary arbitrage: because a YES and a NO redeem together for $1, any time they trade for less or more than a dollar there is a locked profit until fees close the gap. 10 min
- 5 Sizing the Bet & the Real Risks Turning an edge into a position — forming your probability the Bayesian way, comparing it to the price to measure edge, sizing a binary bet with the Kelly criterion (and why fractional Kelly), and the risks unique to prediction markets: ambiguous resolution, oracle disputes, illiquidity, correlated bets, and regulation/geofencing. 10 min
- 6 Final Exam: Trading the Crowd A graded, locked capstone across the whole Polymarket & Prediction Markets course — outcome shares and price-as-probability, USDC/Polygon plumbing, $1 share sets and minting/merging, the CLOB and slippage, UMA optimistic-oracle resolution, calibration and the favorite–longshot bias, binary arbitrage, and Kelly-sized binary bets with their risks. 15 min
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