“Arbitrage isn't just about payoffs; it's about what the protocol lets you trade”
Distinguishes payoff-space no-arbitrage, which follows from terminal payoffs, from protocol-executable no-arbitrage, which depends on what position transformations traders can actually perform. Using Polymarket's negative-risk markets and the NegRisk Adapter, the authors reconstruct depth-aware portfolio values and transaction histories to measure payoff-bound violations: an estimated $1.12 million in arbitrage profit across two realization channels. Violations concentrate on the unsupported YES side, while adapter-supported NO-side violations are rarer and shorter-lived. The takeaway: market efficiency depends not only on payoff structure, but on whether protocols expose payoff equivalences as executable primitives.
Extensive technical background assumed
Platforms mentioned: Polymarket