Polymarket To Deploy In-House Market Maker Against Users Prediction market platform Polymarket is reportedly planning to use its own capital to trade directly against its users. The company has begun approaching traders, including experienced sports bettors, to join this internal market-making operation. This strategic shift comes as Polymarket seeks to expand its presence in the United States. The move places Polymarket in a similar position to its US-based rival, Kalshi, which has also faced scrutiny for engaging in proprietary trading against its own customer base. The practice involves the company itself, or a dedicated internal team, taking the opposite side of user bets to provide liquidity and capture spreads. Industry observers note that using an in-house market maker can significantly boost a platform’s revenue. By actively trading against user positions, the company can profit from the difference between buying and selling prices, rather than relying solely on transaction fees. This model can ensure consistent market activity even when natural counterparties are scarce, potentially improving the trading experience by narrowing bid-ask spreads and increasing order book depth. However, the strategy is fraught with potential conflicts of interest and regulatory concerns. Critics argue that when a platform trades against its users, it creates an inherent adversarial relationship. The company has access to superior data, including overall betting trends and large, pending orders, which could theoretically be used to inform its own trading decisions at the expense of regular users. This perceived advantage raises questions about market fairness and transparency. The scrutiny faced by Kalshi highlights the regulatory sensitivity of this approach. Authorities are typically wary of platforms that potentially pit themselves against their clients, as it echoes traditional financial market abuses where a firm profits from its customers’ losses. For Polymarket, which has previously navigated regulatory challenges with the CFTC, adopting such a controversial model could invite fresh examination as it targets US growth. Proponents of the model counter that sophisticated algorithmic market making is a neutral tool for efficiency. They contend that a well-designed internal system would operate within strict limits, aiming solely to facilitate smooth trading without engaging in directional speculation or predatory behavior. The success of this defense likely depends on the specific safeguards and firewalls Polymarket implements to separate its market-making functions from other operations. The recruitment of external traders suggests Polymarket is looking to build a professional, segregated team for this function, possibly to add legitimacy and expertise. The long-term impact on user trust remains an open question. While active markets are attractive, participants may be hesitant if they believe the platform has a structural incentive for them to lose. This development signals a pivotal moment for prediction markets as they scale. The tension between liquidity provision, profitability, and ethical operation is coming to the forefront. Polymarket’s experiment will be closely watched to see if an in-house market maker can coexist with a fair and trusted user experience, or if the inherent conflicts prove too difficult to manage under regulatory and public scrutiny.
