Understand Polymarket in One Article: What Is a Mirror Order Book? Why Must YES + NO Equal 1?

Decentralized Prediction Markets Polymarket has rapidly gained popularity in recent years, becoming a focal point for the crypto community and macro traders. Most users have heard the core phrase of Polymarket: “YES + NO = 1,” but this seemingly intuitive formula actually involves the pricing logic of prediction markets, shared order book design, and many misunderstood arbitrage strategies.

Researcher DFarm approaches from a mechanism perspective, analyzing why Polymarket must satisfy that the prices of YES and NO sum to 1, and how this design impacts liquidity and trading behavior. The following is a translation compiled by Chain News.

YES and NO are not two separate assets but a split of one dollar

Many newcomers intuitively think that YES and NO are like two independent stocks, each freely priced, leading to the idea that “YES 0.7 + NO 0.6 = 1.3” is also acceptable. However, in Polymarket’s design, this understanding is incorrect.

Polymarket does not trade lottery tickets but a certificate worth one dollar that can be exchanged in the future. The market simply splits this 1 dollar into two complementary outcomes:

• If the event occurs: YES = 1 dollar, NO = 0
• If the event does not occur: YES = 0, NO = 1 dollar

Therefore, at settlement, regardless of the outcome, the total of YES and NO always equals 1. As long as you hold both YES and NO in the same market under the same settlement conditions, it is equivalent to holding an asset that will definitely pay out 1 dollar at maturity.

Multi-option markets are essentially a combination of YES / NO

Not all markets on Polymarket are presented as simple YES / NO. For example, markets involving Bitcoin price ranges or the number of tweets by a specific person often contain multiple options. But from an API or structural perspective, each option is still an independent “yes or no” proposition. For example:

• Will Elon Musk send 0–19 tweets within a certain period?
• Will he send 20–39 tweets?

Each option corresponds to YES and NO, still following the pricing logic that YES + NO = 1.

Sports markets follow the same concept. For example, in NBA markets, since a game must have a winner, the home team and away team effectively correspond to YES and NO for the same event; in sports like soccer where draws are possible, the options are split into home team, away team, and draw, which are mutually exclusive outcomes.

Shared order book: liquidity is concentrated, not two separate markets

Unlike traditional crypto exchanges, Polymarket does not maintain completely independent order books for YES and NO. Instead, it uses a shared order book design. Orders on the YES side are mirrored on the NO side.

In practice, when a trader places a buy order for YES (, for example, at a price of 0.18 and quantity 10 ), the system automatically displays a sell order on the NO side at a price of 0.82 with the same quantity of 10. The buy and sell orders are perfectly symmetrical, with prices always satisfying the relationship 1 − x.

This is also why users cannot truly short YES or NO. The visible sell orders do not mean someone has borrowed and sold the asset; rather, they are the result of the shared order book’s price mapping. This design aims to concentrate liquidity, avoiding funds being split across two independent markets, thereby improving price discovery efficiency.

Why is arbitrage where “YES + NO < 1” impossible?

There is a common arbitrage misconception in the community: by simultaneously buying low-priced YES and low-priced NO in the same market, if their sum is less than 1, one can profit from the difference. However, under the shared order book mechanism, such situations theoretically cannot appear on the screen.

The reason is that when someone attempts to sell YES at a low price, the system effectively receives a “high-price buy” order for NO; if another trader is selling NO at a lower price, the two orders will be immediately matched, leaving no unbalanced orders in the market.

In other words, the shared order book functions like an automatic balancing mechanism. As soon as a potential opportunity for YES + NO < 1 appears, the system internally absorbs it instantly, preventing external traders from intervening.

What arbitrage opportunities still exist in prediction markets?

Although arbitrage within a single market for YES / NO does not exist, under certain conditions, other arbitrage possibilities remain:

Multi-option arbitrage

In a mutually exclusive and fully covering multi-option market, buying all YES options at a total cost below 1 dollar can theoretically lock in profit. However, such opportunities are extremely rare and are usually captured instantly by high-frequency bots.

Cross-event arbitrage

When two different markets describe nearly identical events but show pricing discrepancies, small arbitrage margins may exist. However, this strategy requires a high level of semantic understanding and settlement rule judgment.

Cross-platform arbitrage

The most common is arbitrage between Polymarket and platforms like Kalshi, Opinion, etc. The premise is that both describe the same event, with identical settlement rules, and after deducting fees and capital lock-up costs, the total cost remains below 1.

This article “One article to understand Polymarket: What is a mirror order book? Why must YES + NO equal 1?” was first published by Chain News ABMedia.