Hardcore breakdown of Polymarket fee formula: How does an extreme fee rate of over 90% come about?

Original | Odaily Planet Daily ( @OdailyChina )

Author｜Azuma（@azuma_eth）

Polymarket has suddenly fallen into a fee controversy.

Multiple community users discovered last night that when trading on Polymarket, they were charged unusually high fees, and the shares or profits they actually received were noticeably smaller than before.

Overseas user Frosen (@frosen) even posted screenshots showing that they wanted to place an order for 100 shares in an “economy” category market at a price of 0.1 cents, but the Polymarket front end displayed an expected payout for correct settlement of only $5.2 (normally it should be $100)—corresponding to an outrageously high fee rate of as much as 94.8%!

What is going on here? Is Polymarket trying to take money too far? According to Odaily’s official disclosure from Polymarket and community investigations, the direct cause of this unexpected situation is that Polymarket changed its fee formula for the platform last night, and there were three versions of changes:

• First is the “old formula” introduced starting March 30: fee = C × p × feeRate × (p × (1 - p))^exponent；
• Then comes the first change, which caused the unexpected situation (abbreviated as the “abnormal formula”): fee = C × feeRate × (p × (1 - p))^exponent；
• After realizing the problem, Polymarket corrected it and came up with the current version of the “new formula”: fee = C × feeRate × p × (1 - p)；
• Note that in the three formulas, C refers to the number of shares traded, p refers to the share trading price, and feeRate and exponent are variables.

Breaking down the abnormal formula—how did the outrageous 94.8% fee rate come about?

You don’t need to care too much about the mathematical details. By comparing the “old formula” and the “abnormal formula,” you can easily see that the latter only removes one “ × p” (this is a multiplication symbol, not a lowercase X) — meaning it ends up multiplying by the share price one fewer time.

Since all share prices on Polymarket are always less than $1, this will inevitably cause the overall fee to rise, and the lower the share price, the more pronounced the increase becomes—because the fee rises by missing that one multiplication. When the share price is close to 0, you may even see a very ridiculous fee rate—because at that point the total value of the order is also very low, making the fee rate look especially excessive.

As for how ridiculous the fee can get, it depends on the same variable ^exponent that exists in both the old formula and the abnormal formula. If ^exponent is translated directly, it means “raised to the exponent power.” This variable is mainly used to control the steepness of the fee curve.

According to what Polymarket official staff Mustafa said, last night’s abnormal formula introduced exponent only in the “weather” and “economy” market categories (for other markets, set the parameter to 1 and you can ignore this variable). And according to disclosures from overseas KOL Quant Chad (@Autonomous_Chad), the exponent parameters set for these two major markets at the time were both 0.5.

Now let’s return to Frosen’s case and plug the corresponding numbers into the abnormal formula fee = C × feeRate × (p × (1 - p))^exponent. We know C equals 100, meaning Frosen wants to place an order for 100 shares; p equals 0.001, meaning $0.001 (0.1 cents); exponent equals 0.5, meaning you perform one more power operation on (p × (1 - p)); and the final fee rate is 94.8%.

Hand it to an AI and you can back-calculate the feeRate level at the time to be roughly 0.03, and also reconstruct the exact formula calculation steps Polymarket applied to this order.

In simple terms: Polymarket calculated that the fee that should be charged for this order under the abnormal formula was $0.0948. But because Polymarket’s deduction method for buy orders is to directly deduct shares of the corresponding value, and at the time the share price was only $0.001, it needed to deduct 94.8 shares. So the shares Frosen ultimately received were only 5.2 shares—even though the potential profit if the prediction was correct would only be $5.2.

Polymarket’s remediation

Not long after the abnormal fee issue appeared, Polymarket quickly responded and modified the formula to the current version: fee = C × feeRate × p × (1 - p). Compared with the abnormal formula, the new formula removes “^exponent”—in other words, it raises the exponent parameter in the abnormal formula fee = C × feeRate × (p × (1 - p))^exponent from 0.5 to 1.

In the abnormal formula, the effect of ^exponent is to perform a power operation again on the set of data p × (1-p). In Polymarket’s actual operating conditions, the theoretical result range for p × (1 - p) is between “0.000999 and 0.25”—when p is closer to 0.5 (i.e., the share price is closer to $0.5), this set of data gets closer to 0.25; when p is closer to 0 or 1 (i.e., the share price is closer to $0 or $1, with extreme quotes of $0.001 and $0.999), the set of data gets closer to 0.000999.

Within the “0.000999 to 0.25” interval, regardless of the value taken, when exponent is increased from 0.5 to 1, it directly reduces the final fee result in the formula—thereby lowering the overall fees.

More importantly, this reduction has a more obvious suppressing effect on the abnormally high fee rates near extremely low price points—for example, when p × (1-p) = 0.000999, the fee under the new formula is only about 3.16% of the fee under the abnormal formula, meaning it drops by about 96.84%; and when p × (1-p) = 0.25, the fee under the new formula is 50% of the fee under the abnormal formula.

As shown in Polymarket’s official documentation, after the new formula began execution, in the two affected market categories—“weather” and “economy”—the highest fee rate at the extremes has been reduced to 5% so far.

• Odaily Note: Other markets have slightly different fee ranges. For crypto markets it’s 0.07%-7% (the higher the share unit price, the lower the fee rate; other things being the same). For sports markets it’s 0.03%-3%. For markets in finance, politics, culture, and technology it’s 0.04%-4%. For economy, weather, culture, and other markets it’s 0.05%-5%.

How can retail users avoid fees?

I know most users are too lazy to look at the formulas above, but at the same time they’re also very worried about Polymarket’s current fee problem.

In response, Mustafa mentioned in the official Discord: “If you’re worried about fees, you can for free place limit orders, and after this new update you can also get 20%-25% market-making rebates (maker rebate)—which means that when your limit order gets filled, you will receive 20%-25% of the counterparty’s taker fee. So not only can you trade for free, you can even earn rewards by trading and providing competitive liquidity.”

So change the habit: try not to take orders directly anymore. Use more limit orders instead. You can also try to use Polymarket’s Split feature more—by indirectly building a position via reverse placing sell orders for the other side’s shares.