Order Book vs AMM
How pricing and liquidity works on Polymarket: CLOB and AMM.
Polymarket is unique because it has transitioned from a pure AMM (Automated Market Maker) model to a hybrid model that heavily utilizes a CLOB (Central Limit Order Book).
The CLOB (Central Limit Order Book)
This is the standard for traditional finance (stocks, forex) and centralized crypto exchanges (Binance, Coinbase).
- Bids: People offering to buy at a specific price.
- Asks: People offering to sell at a specific price.
- Matching: When a Bid meets an Ask, a trade happens.
Why it's good: It allows for "Limit Orders". You can say "I want to buy Yes, but only if the price drops to 50¢".
The AMM (Automated Market Maker)
In the early days (and for some smaller markets), Polymarket used an AMM (specifically a CPMM or LMSR variant).
- You trade against a "pool" of liquidity, not another person directly.
- The price adjusts automatically based on how much you buy.
- Slippage: If you buy a huge amount, the price moves against you significantly.
Current State
Polymarket now primarily uses the CLOB for its main markets. This means:
- Tighter Spreads: The difference between Buy and Sell price is very small.
- Better Liquidity: Professional market makers provide liquidity.
- Limit Orders: You have more control over your entry price.
For the user: You don't strictly need to worry about this. The interface simplifies it. But knowing there is an Order Book helps you understand why your large order might not fill instantly at one price.