NegRisk Arbitrage Bounds Break Exploitation

The strategy monitors related binary markets where outcomes are mutually exclusive and exhaustive (e.g., yes/no on the same event or complementary events). Under no-arbitrage, the sum of prices for these contracts should equal $1. When order book imbalances or bot latency cause the combined price to deviate above or below $1, the strategy simultaneously buys the undervalued side and sells the overvalued side, locking in a guaranteed spread. The edge arises from slow market makers and stale quotes that fail to rebalance quickly after news or large trades.

Entry: Detect when the sum of best bid/ask prices across the linked contracts deviates from $1 by more than the trading fee threshold (typically >0.5% after gas costs). Enter by placing limit orders on both legs simultaneously, using the NegRisk adapter contracts to combine positions and reduce collateral requirements. Exit: Hold until prices converge back to $1, typically within seconds to minutes, then close both legs. If convergence is delayed, the strategy can early-exit by selling the profitable leg and rolling into the next event window.

Results from the report indicate four bots have repeatedly captured this spread with win rates near 100% and returns averaging 0.8-1.2% per trade after fees, with dozens of executions per day during high-volatility events. The bots use pre-signed transactions and gas-efficient batch calls to ensure both legs execute near-simultaneously.

Implementation requires access to real-time depth data from Polymarket's CLOB API, a fast node for transaction confirmation, and custom logic to compute NegRisk combinations. The strategy capitalizes on the exchange's unique adapter system where payouts are settled automatically, allowing instant unlocking of capital. Risk is minimal but requires monitoring for protocol upgrades or changes in fee structures.