Galaxy: The effectiveness of Polymarket's fee mechanism remains to be seen

Author: Will Owens, Research Analyst at Galaxy Digital; Source: Galaxy; Translated by: Shaw Golden Finance

On March 30, Polymarket officially launched its fee structure. In the previous months, the platform only charged fees for cryptocurrency and sports prediction markets, but now, the trading fees will cover almost all categories on this largest global prediction market platform: politics, finance, economics, culture, weather, technology, etc. Only geopolitical and international events markets will remain free.

The timing of this adjustment is quite deliberate. Polymarket’s 30-day trading volume recently reached approximately $9.55 billion. Although prediction markets are often criticized, the platform has long ceased to be a rudimentary experimental product. Polymarket is now a formally operating business backed by investment support from the Intercontinental Exchange Group (ICE, the parent company of the New York Stock Exchange). The free era built a user base by incentivizing traders to inject liquidity into the market, while the fee era must prove the reasonableness of its charges.

Previously, Polymarket only charged taker fees for cryptocurrency and sports markets: the maximum effective fee rate for cryptocurrency was 1.56% (for a 50% probability tier), while for sports it was 0.44%. Starting March 30, the aforementioned rates will be increased, and the fee mechanism for the newly added categories will also take effect.

The upcoming fee structure of Polymarket.

The fees are not fixed but are dynamically fluctuating. The calculation formula states that: when the contract price is around $0.50 (highest uncertainty), the rate peaks, and at extreme prices (lowest uncertainty), the rate approaches zero. For example, in the cryptocurrency market, a trade priced at $0.50 (with equal probability of winning or losing) and a size of 100 contracts incurs a fee of $0.90; if the same trade is priced at $0.95, the fee would be $0.32. For trades with almost certain outcomes, participants can essentially trade for free.

This fee applies only to taker traders. Maker orders do not incur any fees and can also enjoy daily USDC rebates funded by taker fee revenues. This means that market makers not only do not have to pay this new fee but can also receive subsidies.

The fees apply only to new markets launched on or after March 30, 2025, and existing markets will not be affected. As before, Polymarket does not charge any fees for deposits and withdrawals.

Our Perspective

The rate structure categorized by type is not arbitrarily set. The cryptocurrency category has the highest rate due to it being the most frequently traded and the sector with the highest manipulation risk on the platform, where this type of short-term price market is filled with numerous bots. Setting fees can effectively suppress false trading and high-frequency trading. The lower rates for sports and political markets are because they are Polymarket’s core categories and key drivers of brand awareness and mainstream adoption. The financial markets offer the most generous maker rebates, clearly aimed at attracting professional liquidity providers in the areas with the highest depth requirements.

Geopolitical contracts are free forever. This is the core value of the platform and the area where prediction markets can produce the purest and most valuable information signals. Charging fees for the outcomes of geopolitical events may distort the purity of information, undermining its core value recognized by users as a public good.

In terms of revenue, Pine Analytics estimates based on Dune’s on-chain data: according to the current taker trading volume, after the full implementation of fees, the platform’s total daily fee revenue will be approximately $1.2 million, with an average effective fee rate of about 0.76%. After deducting maker rebates and promotional shares, the protocol’s daily net income will range between $570,000 and $950,000.

On an annual basis, the revenue range is approximately $209 million to $342 million. In comparison: Pump.fun (a popular Solana meme coin issuance platform) has a daily net income of about $1 million, and Hyperliquid around $2 million. Even at the lower end of the estimate, Polymarket is already among the highest revenue-generating applications in the crypto industry.

The optimistic scenario is evident:** fees supported by maker rebates will foster deeper liquidity, narrower spreads will attract more trading volume, creating a virtuous flywheel**. Polymarket will grow into a platform with real commercial value, while simultaneously not compromising its geopolitical information function that gives it social impact.

The pessimistic scenario is also straightforward: taker traders now need to pay fees of 0.5% to 1.8% for speculative bets, and retail traders and arbitrage bots relying on a zero-fee environment may reduce their taker volumes or only trade through maker orders.

However, the gradual implementation is helpful. Only new markets are affected, and existing positions are not impacted. The real test will come when old markets expire, and the new fee markets gradually replace them. First, focus on cryptocurrency trading volume—this category has the highest rate and is the most sensitive leading indicator. If the taker activity here remains stable, other categories are unlikely to encounter problems.

Polymarket and Kalshi are in an intense competition in the prediction market space. The effectiveness of this fee decision remains to be seen.