Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

Polymarket suddenly fell into a fee turmoil.

Several community users discovered last night that unusually high fees were deducted when trading on Polymarket, resulting in a significant reduction of actual shares or profits compared to the past.

Overseas user Frosen (@frosen) even posted an image indicating that he intended to order 100 shares at a price of 0.1 cents in the "Economics" market, but the potential winning payout shown on the Polymarket front end was only $5.2 (it should be $100) — corresponding to an outrageous fee rate of 94.8%!

What is going on? Is Polymarket desperate for money? According to Odaily's investigation based on Polymarket's official disclosure and community surveys, the direct cause of this unexpected situation was that Polymarket modified the fee formula for the platform last night.

In short, Polymarket changed the formula three times last night:

• First is the "old formula": fee = C × p × feeRate × (p × (1 - p))^exponent;
• Then the first change, the formula that caused the unexpected situation (referred to as the "anomalous formula"): fee = C × feeRate × (p × (1 - p))^exponent;
• Then Polymarket made a correction upon realizing the problem, resulting in the current version of the "new formula": fee = C × feeRate × p × (1 - p);
• It should be noted that in all three formulas, C refers to the number of shares traded, p refers to the trading price of shares, and feeRate and exponent are variables.

Breaking down the anomalous formula, how is the outrageous 94.8% fee rate derived?

You don’t need to pay too much attention to the mathematical details; by comparing the "old formula" and the "anomalous formula," you can simply find that the latter only removed one " × p" (this is a multiplication symbol, not a lowercase x), which means it has one less multiplication by the shares price.

Since the price of all shares on Polymarket is always less than $1, this will inevitably lead to an overall increase in the fee, and the lower the price of shares, the more pronounced the increase in fees becomes due to the missing multiplication — when the share price approaches 0, there can be extremely outrageous fee rates.

The extent to which this fee can be outrageous also depends on the same variable ^exponent that exists in both the old formula and the anomalous formula. ^exponent translates directly to "raised to the exponent power," and this variable is mainly used to control the steepness of the fee curve.

According to Polymarket personnel Mustafa, the anomalous formula introduced exponent only in the "Weather" and "Economics" markets (other markets set the parameter to 1, ignoring this variable), and according to disclosures from overseas KOL Quant Chad (@Autonomous_Chad), the exponent parameters set for these two major markets were both 0.5 at the time.

Now, returning to Frosen's case, let’s substitute the corresponding numbers into the anomalous formula fee = C × feeRate × (p × (1 - p))^exponent. It is known that C equals 100, which means Frosen intends to order 100 shares; p equals 0.001, which is $0.001 (0.1 cents); exponent equals 0.5, meaning another power operation on (p × (1 - p)); the final rate is 94.8%.

When directly analyzed by AI, it can be reverse-engineered to find that the feeRate level at that time was 0.03, while restoring the formula calculation details Polymarket used for this order.

In simple terms, Polymarket calculated that the fee for this order should be $0.0948 based on the anomalous formula, and since Polymarket deducts fees by directly taking the corresponding value in shares, and at that time the share price was only $0.001, it would need to deduct 94.8 shares. Therefore, the final number of shares Frosen could actually receive was only 5.2, and even if the prediction was correct, the potential profit would only be $5.2.

Polymarket's remedial measures

Shortly after the abnormal fee issue arose, Polymarket quickly responded and modified the formula to the current version fee = C × feeRate × p × (1 - p). Compared to the anomalous formula, the new formula removed the “^exponent” — it basically raised the exponent parameter in the anomalous formula fee = C × feeRate × (p × (1 - p))^exponent from 0.5 to 1.

In the anomalous formula, the effect of ^exponent is to perform another power operation on the data set of p × (1-p). In Polymarket's actual operating conditions, the theoretical result range for p × (1 - p) is between "0.000999 - 0.25" — the closer p gets to 0.5 (the share price approaches $0.5), the closer this data set gets to 0.25; the closer p gets to 0 or 1 (the share prices approach $0 or $1, extreme values are $0.001 and $0.999), the closer this data set gets to 0.000999.

In the "0.000999 - 0.25" range, regardless of what value is chosen, raising the exponent parameter from 0.5 to 1 would directly lower the final fee results in the formula calculation, effectively reducing the overall cost.

More importantly, this reduction has a more significant suppressive effect on the aberrantly high fees near extremely low prices — when p × (1-p)=0.000999, the fee under the new formula is only about 3.16% of the fee under the anomalous formula, which is equivalent to a decrease of about 96.84%; when p × (1-p)=0.25, the fee under the new formula is 50% of the fee under the anomalous formula.

As shown in Polymarket's official documentation, since the new formula was implemented, the fee rate level at the extremes in the "Weather" and "Economics" markets has now dropped to 5%.

How can retail investors avoid fees?

I know that most users are too lazy to look at the above formulas, but they are also very worried about the current fee problem on Polymarket.

In response, Mustafa mentioned in the official Discord: “If you are concerned about fees, you can place limit orders for free, and after this new update, you can also receive a market-making rebate of 20%-25% — this means that when your limit order is executed, you will receive 20%-25% of the taker fees from the counterparty, which means not only trading for free but also potentially earning rewards by providing competitive liquidity.”

So change your habits a bit; try not to take market orders directly, and it’s good to use limit orders more often. You can also try using Polymarket's Split feature more frequently to indirectly establish positions by selling shares on the other side with reverse limit orders.

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