Arbitration opportunities
Between Prediction Pool and Trade Pool
In order to understand the possibilities of arbitration on the Polars platform, we need to note several points:
  • The liquidity of the Prediction Pool is unlimited. Between events, you can buy any number of polar tokens at their current spot price.
  • When the Live Prediction Pool event is closed. Users cannot buy and sell polar tokens. After the end of the event, the Prediction Pool opens with new spot prices in accordance with the results of the event.
  • During the event, users have the opportunity to exchange polar tokens among themselves at their market price in the Trade Pool.
  • Trade Pool works around the clock. This is a fork of the Balancer Pool, which works by analogy with any AMM pool like Uniswap, PancakeSwap and others.
  • This means that users add liquidity to the polar tokens to the Trade Pool and the amount of liquidity is limited in accordance with the amount of liquidity provided by the liquidity providers.
  • This means that there is a concept of slippage in the Trade Pool, which directly depends on the amount of liquidity provided and the volume of transactions on the part of users.
Based on the theses given above, we can conclude that due to the unlimited liquidity of the Prediction Pool and its stable prices for polar tokens between events, the market price in the Trade Pool, the fluctuations of which depends on the volume of liquidity in the Trade Pool, always will tend to align with the new Prediction Pool price after each event ends.
During the event, users' moods change. They are transferred from one polar token to another, changing their predictions. Due to such activity, the price of polar tokens in the Trade Pool begins to change and differs from the stable price of the Prediction Pool. This price implies a value that meets the expectations of users at the moment. Because of this, other users can get favorable prices for buying or selling a particular polar token, exploiting market inefficiencies. Eventually the event will end, the Prediction Pool will open with new stable prices, and the Trade Pool price will be aligned with the price of the Prediction Pool. There will be price equalization between the pools. Someone will make a profit on this.
Last modified 13d ago
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