The Anatomy of a Decentralized Prediction Market: Microstructure Evidence from the Polymarket Order Book

Abstract: We study the microstructure of Polymarket, the largest on-chain prediction market, using a continuous tick-level archive of the public WebSocket order-book feed (30 billion events over 52 days) joined to the authoritative on-chain trade record. On a pre-registered stratified panel of 600 markets we report eight stylized facts: a longshot spread premium; a depth-concentration profile closer to a uniform geometric grid than to the top-of-book pattern often assumed for prediction markets; a null block-clock alignment effect; broad maker-wallet diversity with a concentrated tail; category-conditional differences in effective spread; a sub-50 ms median archive-ingestion delay with a multi-second tail; a self-counterparty wash share with median 1% and a 22% upper tail, well below the network-classifier benchmarks of Cong et al. (2023) for unregulated cryptocurrency token exchanges (a sanity bound, not an apples-to-apples reference, since the venues face different wash incentives); and a depth decay near resolution with a within-category slope of 0.55 on log seconds-to-close (t=3.85). The paper also contributes a measurement result: trade direction inferred from Polymarket's public order-book feed agrees with on-chain ground truth only ~59% of the time (panel mean 0.615, 95% CI [0.58, 0.65]), barely above the 50% chance baseline. On the comparable subset of the top-100 panel, the effective half-spread changes sign between feed- and on-chain directions on 67% of markets in a first 7-day window and 50% in a second non-overlapping window, with Kyle's lambda flipping on 60% and 43% respectively; neither window recovers the on-chain sign at anything close to the ~80% rate that Lee-Ready achieves on equity venues. Microstructure work on Polymarket therefore needs to source trade direction from on-chain OrderFilled events; we release a replication package that performs the join.