The 4 Truths and Fee Traps Behind Polymarket’s LP Incentives

Compiled by | Odaily (@ओडेलीचाइना)

Translator | Wenser (@वेन्सर२०१०)

Editor’s Note: Recently, posts about Polymarket’s LP incentives for the NCAA “March Madness” have been flooding timelines on platform X. At the same time, official Polymarket members hinted at a major announcement next Monday, with community speculation pointing towards fundraising or a token launch.

Following the US SEC and CFTC clearing the path for क्रिप्टो platform airdrops with the “Five-Part Test,” POLY has become the “last hope for airdrop farming” in the eyes of many, with LP market-making potentially becoming a key metric for the airdrop.

In light of this, Odaily will present a more comprehensive perspective for Polymarket users by sharing the contrasting views of two analysts regarding the LP market-making incentives. The following is the compiled content, with some information edited for brevity.

Positive View: The 4 Major Categories Behind Polymarket’s LP Incentive Program

Recently, Polymarket’s incentive mechanism underwent a quiet upgrade, shifting its focus towards Liquidity Providers (LPs). For the past few years, the platform operated with a “zero trading fee” strategy, but since the beginning of this year, it has quietly introduced fees for specific prediction markets while launching two major market maker reward programs.

On the surface, charging trading fees might seem unfavorable for traders, but in reality, it addresses the most fundamental structural pain point of prediction markets—the liquidity problem.

The new fee structure aims to fund incentive programs that reward users who provide limit orders and maintain order book depth. Consequently, both Polymarket and its users benefit from: narrower spreads, richer order books, and a better trading experience—especially in high-frequency crypto markets.

Its rollout path is also very clear, showing a trend from single to multiple:

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

Based on the above information, this article will detail how the new fee and reward system works—and why the fees paid + rewards earned could become a potential anti-sybil metric in the POLY airdrop. This is not a simple monetization move; it’s Polymarket showing through action that what it truly wants is liquidity, not wash-trading bots.

Part I. A Complete Analysis of the New Taker Fee Mechanism

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

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

• All Crypto up/down markets (15min, 5min, 1H, 4H, daily, weekly, etc.)
• NCAAB (US college basketball)
• Serie A (Italian football)

The key point is that taker fees only apply to markets created after the fee activation date; existing prediction events created before are unaffected.

The fee formula is uniform (where C = number of shares traded, p = share price / market probability, fees rounded to 4 decimal places, minimum fee is 0.0001 USDC):

The effective fee rate follows a symmetric probability curve:

• Fees are highest when the probability is near 50% (highest outcome uncertainty);
• Fees approach 0 when the probability is near 0 or 1 (higher outcome certainty).

For example, for a $100 trade in a Crypto market:

• p=0.50 → trading fee ≈ $0.44;
• p=0.10 or 0.90 → trading fee ≈ $0.02.

The probability curve for sports events is similar, but the midpoint fee (around 50% probability) is slightly higher. The fee application direction is as follows:

• Buy: Fee deducted from the share quantity;
• Sell: Fee deducted from USDC funds;
• बाज़ार-making incentives are paid in USDC.

It’s worth noting that Polymarket does not retain the entire fee pool; a fixed percentage of the fees (20% for Crypto markets, 25% for sports prediction events) is directly returned to LPs. (Note: Polymarket’s US-compliant platform uses a simple 0.01% flat fee. This analysis focuses on the global CLOB platform, which introduced the new 2026 fee system.)

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

Incentives in this part only cover markets where taker fees are charged. This means only limit orders that are executed by takers qualify for corresponding rewards; simply placing an order without execution does not count.

The reward amount is calculated in the same way as the taker fee. Each participant’s reward is proportional to their trading volume, with the total reward pool consisting of a portion of the collected fees (20% for Crypto markets, 25% for sports prediction events).

Competition occurs only within specific prediction events; LP orders compete only with other LPs in the same liquidity pool.

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

Part III. Liquidity Incentives (Resting Order Incentives)

The second incentive system is provided by the Polymarket platform and applies to all prediction events (including those without fees).

The core difference is: No order execution is required; you can earn simply by placing orders on the order book to provide liquidity.

Each prediction event defines several parameters that determine eligibility:

• Maximum incentive spread (e.g., ±4 cents)
• Minimum order size
• Daily total reward pool

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

The reward calculation formula is highly detailed:

1. Distance Score (Quadratic Equation)

Where,

V – Maximum incentive spread

एस – Distance from the midpoint

Orders closer to the midpoint score exponentially higher.

2. Two-Sided Score (YES/NO Complementary Structure)

Scores are calculated separately for bid and ask orders, considering the complementary structure of Yes/No markets.

3. Q-Value Minimization Adjustment

Prediction events providing liquidity on both sides of the order book score higher.

One-sided quotes are penalized unless the market probability is near 0 or 1.

4. Final Score

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

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

Currently, active reward events and personal earnings can be viewed in real-time at polymarket.com/rewards. The incentive spread range is highlighted in blue on the order book interface. Users can also refer to the Polymarket official documentation.

Currently, one-sided orders can still earn points (but at a significant discount), while two-sided quotes are prioritized for incentive points. Rewards are calculated separately for each individual prediction event. There is no cross-event calculation. Effectively, the 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 add LP incentives to a specific market using USDC, attracting LPs to provide liquidity. Sponsors can deposit or withdraw funds at any time, and any unused funds are automatically returned.

The rules for this mechanism are identical to the Liquidity Incentive Program—simply placing orders is sufficient; execution is not required.

A typical case is the prediction event “Will Jesus Christ return by 2027?” where a platform user invested $70,000 as LP incentives in February. They now receive about $57 daily in liquidity incentives, making this event one of the deepest markets on the platform. This mechanism allows the community itself to deeply activate market liquidity for any prediction event without waiting for official Polymarket intervention.

Part V. The Strongest Anti-Sybil Metric for the POLY एयरड्रॉप

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

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

Polymarket does not rely on centralized market makers, so if limit orders are insufficient, the order book becomes sparse.

In such cases, it’s difficult to avoid high slippage and sudden fee increases when buying, selling, or executing large orders.

Polymarket doesn’t need wash-trading bots; it needs LPs who provide real value.

Previously, everyone focused solely on trading volume, thinking high volume was the key to securing an airdrop. However, the new fee structure and reward program hint at a different incentive model—what matters is not just volume, but participation in fee-generating prediction events that need liquidity. In other words, the platform rewards targeted LPs, not just passive limit orders.

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

• Proximity of orders to the midpoint
• Order size
• Balance between bid and ask prices

Therefore, rewards become a direct measure of a trader’s value to the platform’s liquidity. If a trader consistently earns rewards, it indicates their orders are actively improving market liquidity and execution quality. Here are examples of potential incentives for market participants:

• Will Arctic sea ice reach its maximum extent this winter?— Existed for 3 months, trading volume under $20k, liquidity reward only $9;
• Will Bitcoin hit $75,000 in March 2026?— Existed for two weeks, trading volume $3 million, liquidity reward $142;
• Bitcoin Up/Down – 15 Minutes— Covers hundreds of events, daily trading volume millions of dollars, average daily fees ~$10k, liquidity reward $2000.

More crucial than specific events is the truth revealed by the data—compared to simple volume metrics, taker fees and earned liquidity rewards are much harder to manipulate. Systematically earning market-making incentives requires capital, risk management, and constant presence, which significantly weakens the advantage of airdrop farmers and instead benefits genuine market participants.

निष्कर्ष: Taker Fees and LP Incentives May Become Key Metrics for the POLY एयरड्रॉप

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

In other words, the best-performing LPs are the most valuable users. The most hardcore Polymarket players are not those with the highest trading volume, but the LPs who cultivate the deepest order book liquidity.

Also attached is a Polymarket LP market-making मार्गदर्शक: 《Now is the Best Time to Interact with Polymarket (Including Exclusive Tutorial)》

Of course, there are always differing opinions in the market. Some believe Polymarket’s LP incentive program appears to be “spending money to buy liquidity,” but is actually a profit-making scheme, a trap set for LP users. Let’s hear the opposing view.

Opposing View: Is Polymarket’s LP Incentive a Platform Scam? Are LPs Actually a “Paid-to-Lose” Trap?

Regarding Polymarket’s recently launched LP incentive program, arbitrage trader and Polymarket/Kalshi bot player securezer0 directly labeled the much-hyped “Polymarket Rewards Farming” as a massive psychological warfare campaign, pointing out that it is a collective hype effort either directly funded by the platform or heavily incentivizing KOLs.

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

Multiple LPs state bluntly: The current Polymarket LP mechanism is essentially “spending money to incur losses.”

Where’s the problem? The leaderboard directly incorporates LP rewards into the displayed P&L data but remains silent on a crucial concept—LP wear and tear (impermanent loss).

When your position gets filled on one side, you often cannot sell at a reasonable price, or cannot sell at all before the event resolves. This portion of capital loss is systematically hidden by the platform. The real ROI data is far lower than the book numbers; for most LP participants, profits are actually negative. They simply believe the POLY airdrop will cover the losses—this is not an arbitrage incentive program, but a trade based on platform faith.

Why Are Professional Market Makers Reluctant to Enter?

Professional market makers generally avoid Polymarket LP market-making

यह लेख इंटरनेट से लिया गया है: The 4 Truths and Fee Traps Behind Polymarket’s LP Incentives

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