Mastering Short-Term Mispricings: Algorithmic Arbitrage on Polymarket

In the fast-moving world of crypto prediction markets, the ability to exploit fleeting inefficiencies has become a cornerstone of profitability. Platforms like Polymarket, built on Polygon's Central Limit Order Book (CLOB) system, have created fertile ground for algorithmic and arbitrage-driven strategies. These methods, powered by AI and high-frequency trading (HFT) tools, consistently extract value from mispriced contracts, often within seconds. While human traders like hai15617 remain enigmatic figures in this space, the documented success of traders such as 0x006 and AI-driven bots underscores the transformative potential of automation in prediction markets.

The Rise of AI and Bots: Exploiting Microsecond Opportunities

Algorithmic arbitrage on Polymarket thrives on three core principles: market rebalancing, combinatorial arbitrage, and cross-platform arbitrage. The most straightforward of these-market rebalancing-occurs when the combined price of "Yes" and "No" shares in a binary market falls below $1.00, guaranteeing a risk-free profit. For instance, if "Yes" is priced at $0.52 and "No" at $0.46, the total cost is $0.98, locking in a 2% return regardless of the market's resolution.

AI-driven bots excel at identifying these opportunities, often executing trades in milliseconds. A notable example is a bot profiled in 2024 that turned $313 into $414,000 in a single month by trading in BTC, ETH, and SOL 15-minute up/down markets. This bot capitalized on Polymarket's lag in reflecting real-time spot price momentum from exchanges like Binance and Coinbase. By entering trades when the actual probability was already ~85% but the market showed 50/50 odds, the bot repeatedly bought "certainty" at a discount.

0x006 and the Power of Information Arbitrage

The case of 0x006, a French trader known as Théo, illustrates how information asymmetry can be weaponized. During the 2024 U.S. presidential election, Théo commissioned a unique "neighbor effect" poll that revealed strong support for Donald Trump in key swing states. At the time, most polls showed a tight race, but Théo's data suggested a clearer path to victory. By heavily betting on Trump's win, he netted $85 million in profit.

Academic research from the IMDEA Networks Institute further validates the scale of arbitrage opportunities. Analyzing 86 million transactions between April 2024 and April 2025, the study found that traders extracted approximately $40 million in risk-free profits from Polymarket. These gains stemmed from combinatorial arbitrage-exploiting mispricings across logically related markets-and cross-platform arbitrage, where traders bought "Yes" on Polymarket and "No" on Kalshi when prices diverged.

The Infrastructure of Speed: AI, VPS, and APIs

The profitability of these strategies hinges on infrastructure. AI models like Linq-Embed-Mistral analyze thousands of markets in real time, identifying pricing mismatches between outcomes. High-frequency traders rely on low-latency VPS (Virtual Private Server) setups to minimize execution delays, often deploying bots on servers geographically close to Polymarket's nodes.

For example, a bot trading in 15-minute Bitcoin contracts exploited the fact that Polymarket's prices often lagged behind spot exchanges by 1–2 minutes. By automating trades via APIs and WebSocket connections, the bot captured tiny but consistent mispricings, compounding returns over time. Open-source tools like the Polymarket-Kalshi Arbitrage Bot and platforms like EventArb.com further democratize access to these strategies, though they require discipline to avoid overexposure. According to analysis, the broader ecosystem demands strategic discipline.

Challenges and the Narrowing Window

Despite their dominance, algorithmic arbitrageurs face diminishing returns as institutional capital floods the market. ICE's $2 billion investment in Polymarket in 2025 brought traditional finance into the space, increasing liquidity and compressing spreads. As a result, the average arbitrage window has shrunk from seconds to milliseconds, favoring those with the most advanced infrastructure.

Retail traders, meanwhile, are increasingly squeezed out. Cross-platform arbitrage, once accessible to individuals with modest capital, now requires maintaining accounts on multiple platforms and navigating complex fee structures. For instance, Polymarket's 2% fee and Kalshi's regulatory constraints create friction that erodes small profits.

Strategic Value in a Fast-Moving Ecosystem

For those who can adapt, however, algorithmic arbitrage remains a powerful tool. The key lies in discipline, position sizing, and risk management. Even as spreads narrow, bots and AI models continue to outperform human intuition by executing trades with mathematical precision. According to analysis, the broader playbook is clear: those who master the interplay of speed, data, and infrastructure will continue to dominate in this high-stakes arena.

Conclusion

The exploitation of short-term mispricings on Polymarket has evolved into a sophisticated arms race. AI-driven bots and algorithmic strategies, exemplified by the success of 0x006 and anonymous arbitrageurs, demonstrate the power of automation in a market where milliseconds determine profitability. While hai15617's specific tactics remain unknown, the broader playbook is clear: those who master the interplay of speed, data, and infrastructure will continue to dominate in this high-stakes arena.