Written by: @clairegu1 Hubble Research Team

In the current Polymarket trading ecosystem, the "Tail Market Strategy" is becoming a popular approach.

Its logic is simple and enticing: specifically seek out markets that have entered the proposed (results submitted) stage, with prices hovering at 0.99. Traders believe that at this point, the event has concluded, the results have been announced, and by buying and holding for 2 hours until settlement, they can stabilize a 1% risk-free price difference. Under the ideal high turnover metaphor, this seems like an annualized "holy grail."

However, on-chain data reveals another concern:

Many active addresses executing this strategy have not only failed to grow their long-term net worth but have also experienced significant drawdowns.

Why can't a 99% win rate yield profits?

The Hubble research team believes the fundamental reason lies in a systematically underestimated variable: the time cost brought by the Dispute mechanism. We audited the full-cycle data of 943 dispute cases in Polymarket's history, and the results show that under specific high-risk market structures, once the time value of frozen funds is accounted for, the theoretical positive expected value (Positive EV) can quickly turn negative.

I. Mechanism Root: Disputes are not Accidents, but Endogenous Games

To understand the source of losses, one must first understand Polymarket's settlement layer — the UMA optimistic oracle.

Many people view disputes as randomly occurring "black swans," but under the design of UMA's mechanism, disputes are actually a form of economically incentivized gaming behavior. According to the rules, if a challenger successfully replaces the proposed outcome, they can claim 50% of the proposer’s collateral (usually $375 or more).

This means that disputes do not entirely depend on what the "truth" is, but rather on whether "the rules allow for interpretive space."

When a market at 0.99 has ambiguous definitions or obvious chain flaws, initiating a dispute provides a bullish option with positive expected value. For traders entering at 0.99, what you think is interest owed is actually selling a complex legal risk insurance without any risk premium.

II. Black Swan Review: How Does Liquidity Dwindle?

We use a famous "black swan" event to illustrate how risk can breach accounts on one level.

1. The Zelenskyy Suit Case

• Subject: Will Zelenskyy wear a suit before July?
• Trading Amount: $242 million
• Background: Zelenskyy appeared in a video wearing a suit with a collared shirt. Although the public generally does not consider this a suit, the rules easily created an exclusive definition for the form of "suit."
• Consequence: The parties involved initiated a series of 5 rounds of technical challenges to contest the collateral.
• Response: The market oscillated between proposal and dispute, with funds forcibly locked for 8.5 days. For funds entering at 0.99, this meant a complete loss of liquidity for an entire week. In a bull market environment, the opportunity cost of this erosion far exceeds the nominal 1% gain.

2. The Stranger Things Case

• Subject: Will Eleven die in "Stranger Things"?
• Background: Before the live broadcast, a highly credible spoiler circulated, quickly pushing the price to 0.99.
• Consequence: Although the spoiler was ultimately proven accurate, opponents initiated a dispute on the grounds of "unverifiable unofficial sources."
• Response: Funds were held up pending the official release and the generation of official evidence. This reveals the core risk in entertainment markets: there is a time lag between factual truth and verifiable evidence. Buying at 0.99 essentially means taking on the uncertainty of this time lag.

III. Pitfall Guide: Stay Away from Markets "Defined by Text"

We conducted stock analysis on 943 historical dispute data and found that Polymarket's risk distribution has extreme structural fractures. What determines the safety of a 0.99 market is not its popularity, but the attributes of its resolution source.

• Politics: Dispute rate as high as 17.7%. Due to the involvement of many precious terms (like "possible," "official") and the information not being costly, this sector is a high-frequency dispute area.
• Entertainment Risk: Dispute rate 12.5%. Mainly stemming from the verifiability of evidence.
• Sports: Dispute rate 2%. Based on surveyed scores, the risk is extremely low.

This indicates that executing a uniform 0.99 strategy in political or entertainment sectors is akin to walking through a minefield.

IV. Recalculating: How Does Time Cost Eat into Profits?

If we consider time costs, what is the mathematical expectation of this strategy?

We constructed an EV model that includes opportunity costs of capital:

• Assumed purchase price: 0.99 (expected return 1%)
• Political market dispute probability: 17.7%
• Average capital lock-up depreciation: 7% (based on an average lock-up of 3 days and bull market capital efficiency)
• Probability of losing all in a lawsuit: 5.3%

Calculation formula:

EV = (Probability of smooth payout x 1%) + (Probability of dispute but winning x (1% - 7%)) + (Probability of dispute and losing x -100%)

Substituting the data yields the following table:

The true EV of the political 0.99 strategy ≈ -5.22%

This is the mathematical explanation for the losses: in the case of high-risk sectors involved in preliminary screening, every order placed at this math results in a net loss.

V. Conclusion

In summary, the key to the success or failure of the tail market strategy lies not in timing, but in the selection of indicators.

True Alpha comes from avoiding those "toxic assets" with negative mathematical expectations. This is also the core design logic of the Hubble Smart Copy Trading System — we do not seek to arbitrage every 0.99 market, but rather establish a strict negative screening:

1. Sector Circuit Breaker: Automatically elevates tail market signals in high-advantage sectors like politics and entertainment.
2. Semantic Risk Control: Utilizes NLP technology to identify high-risk ambiguous terms in the rules, proactively avoiding "textual traps."
3. Dynamic EV Calculation: Real-time calculation of implied odds to ensure that the expected returns of each move can cover potential time costs.

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