Why BASIS Chose Pools

Somebody has to quote the prices on an order book, and they have to be paid for it. Nobody quotes prices in a pool.

That's the whole argument. Everything below is detail and evidence.

What we measured, and why we refuse to average it

Polymarket and Kalshi are order books. They don't take the other side of your trade. Independent traders post bids and asks, you hit them, and a share pays $1 if you're right and nothing if you're not.

Their explicit fees are low, and on some markets close to zero. But the fee schedule is not where most of the cost sits. It sits in the prices. Measured across 111 settled markets, that hidden cost averages 7.6% of everything traded.

Those 111 markets are where every number in this article comes from. Settled Polymarket events, every trade on every outcome, $422m of real money. Fields run from 3 outcomes to 104, median 13. The favorite won 34 of them and a longshot won 77.

One thing to get straight before any of the numbers make sense.

Almost every result here depends heavily on the number of outcomes in the market. A three-way market and a hundred-way market are not the same product sold at different sizes. They behave differently enough that averaging them together destroys the finding. So nothing here is averaged. Every figure is reported by field size, and where a blended number appears it's labeled as one.

Most of Polymarket is three to six outcomes. Any blended number is really a report on small fields with a rounding error attached.

Wide fields are where pools do their best work, and they're where BASIS is strongest.

The older research points the same way. Most academic work comparing pools to the alternative studied bookmakers, firms that quote you a price and carry the risk themselves, rather than order books. Gabriel and Marsden, in "An Examination of Market Efficiency in British Racetrack Betting" (Journal of Political Economy, 1990), found that pools paid winners consistently more than bookmakers did on identical bets. The detail worth sitting with: the pools in that study took 15 to 20% out of every pot and still paid more.

BASIS charges a 0.60% base fee on every bet.

Somebody has to carry the risk

Adverse selection is the risk of being on the wrong end of somebody who knows more than you do.

On an order book, someone has to post a price and leave it sitting there. That person is exposed. Whoever takes their price might know something they don't, and they find out too late to do anything about it. So the price has to be wide enough to survive getting picked off on a regular basis.

Hyun Song Shin worked this out formally in "Optimal Betting Odds Against Insider Traders" (The Economic Journal, 1991) and "Measuring the Incidence of Insider Trading in a Market for State-Contingent Claims" (The Economic Journal, 1993). He was writing about bookmakers, but the result carries across to order books with little change. Same risk. Different person holding it.

In a pool there's no price to defend, because nobody posted one. Informed money changes how the pot gets split, and that's the end of it. Nobody has to see it coming, nobody has to insure against it, and nobody has to widen a price to survive it.

That's where the mark-up goes.

A trader quoting prices can't charge only what they expect to lose to people who know more. They also need a return on the capital they have locked up, cover for the risk of being stuck holding something they never wanted, and their own running costs. All of it goes into the price they show you. They charge it to everybody, because they can't tell who's informed and who isn't. You pay it whether or not a single person in that market knows anything at all.

A pool has nobody to pay for that. There's no one quoting, so there's no quoting mark-up.

In a pool, the whole pot goes to the winners, less the fees.

An order book can't get there while somebody on it carries risk, because risk has to be paid for. That isn't a comment on how well any particular trader is doing. It's what the job costs.

Then there's the part that matters most. The mark-up is worst where wide fields live. Quote a 2c outcome, and every time you get picked off you lose about fifty times the premium you collected. So you either quote it very wide or you don't quote it at all. That's why longshots on order books have such bad prices. Shin predicted the mark-up would grow with the number of outcomes, and Cain, Law and Peel found evidence for it in "The Favorite-Longshot Bias, Bookmaker Margins and Insider Trading in a Variety of Betting Markets" (Bulletin of Economic Research, 2003).

Here's that prediction turning up in real data.

The fee schedule isn't the cost. The prices are.

Where exactly one outcome can win, fair prices add up to 1. On a real order book, the prices you can actually buy at add up to more than 1, and that excess is what you pay for liquidity. Arbitrage squeezes it. It doesn't remove it.

Measured on the trades themselves, weighted by the money that actually changed hands, the medians run:

Read that as one finding rather than four numbers. Cost rises roughly six-fold from a small field to a wide one, then levels off around 7 to 8%. A maker covering a hundred outcomes has to price a hundred longshots, and each one can take fifty times the premium off him in a single hit. He widens or he leaves.

This measure flatters the order book. These are the prices people actually paid, after arbitrageurs had already compressed them. The raw quotes sitting on the book before anyone does that work are wider still, and the difference doesn't vanish. It gets paid to the arbitrageurs.

Blended across all 111 markets the figure is 7.6%. That's the least useful number in this article.

On BASIS, every bet pays the same 0.60% base fee whether the market has three outcomes or a hundred and four, plus a creator fee of 0% to 1% that the market's creator sets. The base fee goes to the vault stakers of that market's base, the operating team, referrers and the BASIS buyback.

An empty order book isn't a market

A bookmaker will price anything, because he wants the business. An order book with nobody quoting on it is just nothing. No bid, no ask, no market.

Fixing that doesn't pay. Covering a 104-runner field means running 104 separate books and splitting your capital across all of them. That only makes sense on markets big enough to justify the effort, which is why liquidity reward programmes exist and why they rarely reach past the top of the list.

It shows up in the data. Of 111 markets, 30 never had a live price on every outcome at the same time. Not thin. Absent.

In a pool, the pot is the liquidity. One pot, not 104 books. On BASIS, every outcome has a price and can be bought from the moment the market opens, with no liquidity mining and no trading desk deciding whether a market is worth their time.

That's the difference between something that works on next month's headline binary and something that works on the 104-runner Player of the Year.

There's no $1 ceiling, and longshots are where it shows

On an order book your payout is fixed at $1 per share the moment the contract exists. The cheapest you can normally buy is a cent, so 100x is roughly your ceiling, and that's before you find out whether anybody was quoting at a cent at all.

In a pool, winners split the whole pot, so a share is not capped at $1. Your payout is your slice, settled at the end rather than fixed in advance. Put $10 on an outcome nobody else touches in a market holding a million dollars, and if it wins you take close to the whole million, less fees.

That's an extreme case, and your share shrinks the moment anyone piles in behind you on the same outcome. It also cuts the other way: a heavily backed favorite can pay less than $1 a share. But it isn't hypothetical. Those 30 markets with dead outcomes are markets where somebody could have been the only money on a live runner.

The averages back it up on exactly the markets you'd want them to. Across the 77 markets where a longshot came in, the winning side collectively took 1.33x out of the pool what the same trades took out of the order book. 61% of winning wallets finished ahead, and 71% of the winning money did.

Longshots are the hardest thing for a market maker to price and the easiest thing for a pool to carry. That gap is what it's worth.

Bets an order book can't afford to offer

This advantage doesn't fade as markets get bigger, which makes it the most durable one pools have.

Every bet type on an order book needs its own book with its own capital sitting in it. An exact-order bet on the first two of a 20-runner field is 380 books. A four-leg parlay across live markets runs into the thousands. Nobody is going to quote that.

A pool doesn't need anyone to quote it. Each market is one pot.

Live today: Winner markets with up to 150 outcomes, Podium markets that pay out on a top finish rather than only first place, and UP/DOWN markets.

Coming: Exact order, Parlay and Survivor.

Note what these are: field-size machines. The exact finishing order of a four-horse race has 24 possible outcomes. Wide fields are the expensive end of an order book and the cheap end of a pool, and these formats create that condition rather than waiting for it to turn up.

Fair warning on this part: the competition here isn't Polymarket. It's sportsbooks, tote pools and lotteries. A bigger market, and a slower-moving one.

What we changed about the classical pool

A classical pari-mutuel solves the counterparty problem and then creates a few of its own. BASIS kept the solution.

Being early should pay more

In a classical pool, everybody gets the closing price. The person who called it a year out and the person who piled in ninety seconds before the close are paid exactly the same. There's no reward for being right early, so nobody bothers, which is why tote prices tell you little until the last minute.

On BASIS you get your shares at the price when you buy. Getting in early buys a permanent slice of the pot. Every dollar that lands later on the other outcomes adds to the pot you hold a claim on, and nobody arriving later can buy at the price you paid.

Here's what that was worth on the markets where the favorite won. Money going in during the first 5% of a market's life, against what the same money made on the order book:

On fields of 31 and up, it beat the order book in every single market in the dataset.

Wide fields lead by a long way, for the same reason they top the cost table: that's where the order book was charging the most, so there was the most room underneath it.

No classical pool study can say anything about this either way, because in a classical pool it doesn't happen.

You lock your price when you buy

In a classical pool you don't know what you've bought until it's over, because the dividend is worked out at the end. That uncertainty costs something. A sensible person wants paying to accept an unknown payout over a known one.

BASIS takes half of it away. Your price is fixed the moment you buy, and you know your share count immediately. What you don't know yet is how big the pot gets, or how many other shares end up on your outcome.

So it's a trade, and it should be presented as one. You swap a fixed $1 per share for a share of the pot that can be worth a great deal more than $1, or less. The uncertainty isn't a defect. It's where the upside lives. And you don't have to hold to the end: shares can be sold early through the peer-to-peer order book.

A price from the first dollar

A classical pool has no price until money shows up, so an empty market is useless. Same dead end as an empty order book, reached by a different route.

On BASIS, every outcome is priced and buyable from the moment the market opens. Nobody has to quote it, and nobody can withdraw it.

The second market underneath the first

Most BASIS markets have a linked Predict+ token. Neither an order book nor a classical pool has anything like it.

A Predict+ token trades on a Stable+ curve, so its price can only hold or rise in its base asset. It tracks how much action the market gets, not who wins it. That gives it a few useful properties.

Getting in early pays. Nobody who arrives later can buy below the price you paid, in its base asset.

There's no race for the exit. A seller can't push the price down in its base asset for anyone who stays, so a rush to sell doesn't punish the patient. Sellers still receive less than the quoted price, more so on a large sale. It's the opposite of a bank run.

You can hold more than one position at once. Hold the token, borrow 100% of its value against it (before fees), and use what you borrowed to bet. Both positions stay live, and the loan ends on its date, not on a dip.

You can take a view without picking a winner. Hold the token, or take leverage on it (up to about 37x, depending on the size of the buy, settled by date with no price liquidation), and you're positioned on how busy the market gets, separately from how it resolves.

A rising price is a pricing rule, not a promise of profit. Fees and execution still matter.

The conservative case

Credibility is worth more than any single number, so here's the version with every assumption stripped out.

A pool doesn't create money. On either venue, winners are paid with the losers' money. What a pool does is leave more of it on the table for the players, because nobody stands in the middle charging for liquidity. That's the whole of it, and it's what the research has been saying since 1990.

The clean number is 1.07x.

Assume money arrives in exactly the proportions the order book's own prices imply, so there's no crowd effect anywhere and nothing is modeled about how people behave. The pool still pays about 7% more. It came out above 1.00x in 92 of the 107 markets it could be computed on.

That 7% is the order book's built-in cost minus the pool's fee, and nothing else. The replay charged the pool a 1.5% fee. That's well above BASIS's 0.60% base fee, and only a little below the 1.60% a market costs when its creator sets the maximum 1% creator fee.

On small fields, pools don't have an edge worth talking about, and we'll say so plainly. At three to six outcomes the embedded cost is 1.3%, and a pool charging 0.60% to 1.60% is charging much the same. Neither venue creates money out of nothing.

Pools earn their advantage as fields get wide. So that's where BASIS competes: big fields, longshots, structured bets, and paying the people who show up early. Plenty of ground.

The whole thing in five lines

1. Somebody has to quote prices on an order book, and they charge you for the risk, their capital and their costs whether or not anyone in that market knows anything. Nobody quotes in a pool, so there's no quoting mark-up.
2. That charge depends on the number of outcomes. Across 111 real markets it ran 1.3% on three-to-six-way fields and 7 to 8% on wide ones. BASIS charges the same base fee on both, so on wide fields most of that gap goes back to the players.
3. An order-book share pays a fixed $1. A pool share pays a slice of the whole pot, which can be more or less than $1, and on the 77 markets where a longshot came in the winning side collected 1.33x what the book paid it.
4. Podium markets are live, and Exact order, Parlay and Survivor are coming. An order book would need thousands of separate books to offer the same, and each of these formats turns a small field into a wide one.
5. Being early on BASIS buys a permanent slice of the pot at a price nobody later can get. In favorite-won markets it was worth 1.40x on three-to-six-way fields and 4.95x on fields of 31 or more.

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Figures from 111 settled Polymarket markets: all trades on all outcomes, $422m notional, fields of 3 to 104 outcomes, with the pool side charged a 1.5% fee. Every headline figure is reported by field size. Past market behavior does not predict future results.