PolymarketDocumentation/docs/developers/market-makers/inventory.md

Documentation Index

Fetch the complete documentation index at: https://docs.polymarket.com/llms.txt Use this file to discover all available pages before exploring further.

Inventory Management

Split, merge, and redeem outcome tokens for market making

Overview

Market makers need to manage their inventory of outcome tokens. This involves:

1. Splitting USDCe into YES/NO tokens to have inventory to quote
2. Merging tokens back to USDCe to reduce exposure
3. Redeeming winning tokens after market resolution

All these operations use the Conditional Token Framework (CTF) contract, typically via the Relayer Client for gasless execution.

These examples assume you have initialized a RelayClient. See [Setup](/developers/market-makers/setup) for client initialization.

Splitting USDCe into Tokens

Split 1 USDCe into 1 YES + 1 NO token. This creates inventory for quoting both sides.

Via Relayer Client (Recommended)

import { ethers } from "ethers";
import { Interface } from "ethers/lib/utils";
import { RelayClient, Transaction } from "@polymarket/builder-relayer-client";

const CTF_ADDRESS = "0x4d97dcd97ec945f40cf65f87097ace5ea0476045";
const USDCe_ADDRESS = "0x2791Bca1f2de4661ED88A30C99A7a9449Aa84174";

const ctfInterface = new Interface([
  "function splitPosition(address collateralToken, bytes32 parentCollectionId, bytes32 conditionId, uint[] partition, uint amount)"
]);

// Split $1000 USDCe into YES/NO tokens
const amount = ethers.utils.parseUnits("1000", 6); // USDCe has 6 decimals

const splitTx: Transaction = {
  to: CTF_ADDRESS,
  data: ctfInterface.encodeFunctionData("splitPosition", [
    USDCe_ADDRESS,                                    // collateralToken
    ethers.constants.HashZero,                       // parentCollectionId (null for Polymarket)
    conditionId,                                     // conditionId from market
    [1, 2],                                          // partition: [YES, NO]
    amount
  ]),
  value: "0"
};

const response = await client.execute([splitTx], "Split USDCe into tokens");
const result = await response.wait();
console.log("Split completed:", result?.transactionHash);

Result

After splitting 1000 USDCe:

• Receive 1000 YES tokens
• Receive 1000 NO tokens
• USDCe balance decreases by 1000

Merging Tokens to USDCe

Merge equal amounts of YES + NO tokens back into USDCe. Useful for:

• Reducing inventory
• Exiting a market
• Converting profits to USDCe

Via Relayer Client

const ctfInterface = new Interface([
  "function mergePositions(address collateralToken, bytes32 parentCollectionId, bytes32 conditionId, uint[] partition, uint amount)"
]);

// Merge 500 YES + 500 NO back to 500 USDCe
const amount = ethers.utils.parseUnits("500", 6);

const mergeTx: Transaction = {
  to: CTF_ADDRESS,
  data: ctfInterface.encodeFunctionData("mergePositions", [
    USDCe_ADDRESS,
    ethers.constants.HashZero,
    conditionId,
    [1, 2],
    amount
  ]),
  value: "0"
};

const response = await client.execute([mergeTx], "Merge tokens to USDCe");
await response.wait();

Result

After merging 500 of each:

• YES tokens decrease by 500
• NO tokens decrease by 500
• USDCe balance increases by 500

Redeeming After Resolution

After a market resolves, redeem winning tokens for USDCe.

Check Resolution Status

// Via CLOB API
const market = await clobClient.getMarket(conditionId);
if (market.closed) {
  // Market is resolved
  const winningToken = market.tokens.find(t => t.winner);
  console.log("Winning outcome:", winningToken?.outcome);
}

Redeem Winning Tokens

const ctfInterface = new Interface([
  "function redeemPositions(address collateralToken, bytes32 parentCollectionId, bytes32 conditionId, uint[] indexSets)"
]);

const redeemTx: Transaction = {
  to: CTF_ADDRESS,
  data: ctfInterface.encodeFunctionData("redeemPositions", [
    USDCe_ADDRESS,
    ethers.constants.HashZero,
    conditionId,
    [1, 2]  // Redeem both YES and NO (only winners pay out)
  ]),
  value: "0"
};

const response = await client.execute([redeemTx], "Redeem winning tokens");
await response.wait();

Payout

• If YES wins: Each YES token redeems for $1 USDCe
• If NO wins: Each NO token redeems for $1 USDCe
• Losing tokens are worthless (redeem for $0)

Negative Risk Markets

Multi-outcome markets use the Negative Risk CTF Exchange. The split/merge process is similar but uses different contract addresses.

const NEG_RISK_ADAPTER = "0xd91E80cF2E7be2e162c6513ceD06f1dD0dA35296";
const NEG_RISK_CTF_EXCHANGE = "0xC5d563A36AE78145C45a50134d48A1215220f80a";

See Negative Risk Overview for details.

Inventory Strategies

Pre-market Preparation

Before quoting a market:

1. Check market metadata via Gamma API
2. Split sufficient USDCe to cover expected quoting size
3. Set token approvals if not already done

During Trading

Monitor inventory and adjust:

• Skew quotes when inventory is imbalanced
• Merge excess tokens to free up capital
• Split more when inventory runs low

Post-Resolution

After market closes:

1. Cancel all open orders
2. Wait for resolution
3. Redeem winning tokens
4. Merge any remaining pairs

Batch Operations

For efficiency, batch multiple operations:

const transactions: Transaction[] = [
  // Split on Market A
  {
    to: CTF_ADDRESS,
    data: ctfInterface.encodeFunctionData("splitPosition", [
      USDCe_ADDRESS,
      ethers.constants.HashZero,
      conditionIdA,
      [1, 2],
      ethers.utils.parseUnits("1000", 6)
    ]),
    value: "0"
  },
  // Split on Market B
  {
    to: CTF_ADDRESS,
    data: ctfInterface.encodeFunctionData("splitPosition", [
      USDCe_ADDRESS,
      ethers.constants.HashZero,
      conditionIdB,
      [1, 2],
      ethers.utils.parseUnits("1000", 6)
    ]),
    value: "0"
  }
];

const response = await client.execute(transactions, "Batch inventory setup");
await response.wait();

Related Documentation

Conditional Token Framework basics Detailed split documentation Detailed merge documentation Gasless transaction execution