Kalshi-Polymarket Hedger ⚖️⚡

Production-grade cross-venue prediction market delta hedging and risk management engine between CFTC-regulated Kalshi (USD) and Polygon CLOB Polymarket (USDC). Powered by high-frequency synchronized orderbook feeds from the NaxosData API.

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🔍 Key SEO Topics & Features

• Kalshi Polymarket Hedging: Cross-venue delta neutrality across federal event derivatives and decentralized prediction contracts.
• Prediction Market Delta Hedging: Dynamic statistical hedging based on correlated binary option event probabilities.
• Kalshi Risk Management: Regulatory CFTC quadratic fee schedule modeling, capital allocation, and basis risk tracking.
• Cross Venue Prediction Arbitrage: Volume-weighted average price (VWAP) orderbook walking, tracking error analysis, and basis spread capture.
• Kalshi Portfolio Hedge: Automated continuous rebalancing with gas-budget gating for Polygon transactions.

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📐 Architecture & Hedging Lifecycle

sequenceDiagram
    autonumber
    participant Feed as NaxosData API Feed
    participant Hedger as Delta Hedging Engine
    participant Math as Risk & Math Solver
    participant Kalshi as Kalshi (CFTC USD)
    participant Poly as Polymarket (Polygon USDC)

    Feed->>Hedger: Synchronized orderbooks (Kalshi & Polymarket)
    Hedger->>Math: Compute Net Delta (Δ_net) & Basis Spread
    Math-->>Hedger: Risk Profile & Delta Drift (|Δ_net| >= Threshold)
    
    rect rgb(240, 248, 255)
        Note over Hedger,Math: Fee & Budget Gating
        Hedger->>Math: Check CFTC Quadratic Fee & Polygon Gas Cost
        Math-->>Hedger: Fee Feasibility Approved (Gas Drag <= MaxDrag)
    end

    alt Portfolio is Long-Biased (+Δ)
        Hedger->>Poly: Execute BUY Reciprocal Outcome (NO Contracts)
        Poly-->>Hedger: Fill Receipt & Gas Cost (POL/USDC)
    else Portfolio is Short-Biased (-Δ)
        Hedger->>Poly: Execute BUY Direct/Reciprocal (YES Contracts)
        Poly-->>Hedger: Fill Receipt & Gas Cost (POL/USDC)
    end

    Hedger->>Hedger: Recompute Portfolio State (Δ_net ≈ 0.0)
    Hedger->>Feed: Await next tick snapshot

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🧮 Mathematical Formulation of Delta Neutrality

1. Prediction Market Contract Payoff & Delta Exposure

A binary prediction contract pays out $1.00 (or 1 USDC) upon event occurrence ($S = 1$) and $0.00 otherwise ($S = 0$). Given a market probability price $P \in (0, 1)$:

$$\Delta_{\text{YES}} = \frac{\partial V_{\text{YES}}}{\partial P} = +1.0, \quad \Delta_{\text{NO}} = \frac{\partial V_{\text{NO}}}{\partial P} = -1.0$$

For a cross-venue portfolio containing $N_K$ contracts on Kalshi and $N_{PM}$ contracts on Polymarket with statistical hedge ratio $\beta$:

$$\Delta_{\text{net}} = N_K \cdot \Delta_K + \beta \cdot N_{PM} \cdot \Delta_{PM}$$

Where the hedge ratio $\beta$ is derived from the statistical correlation $\rho$ and price volatilities $\sigma_K$ and $\sigma_{PM}$:

$$\beta = \rho \cdot \frac{\sigma_K}{\sigma_{PM}}$$

2. Delta Neutrality Condition & Reciprocal Mapping

To achieve exact delta neutrality ($\Delta_{\text{net}} = 0$):

$$\Delta_{\text{Kalshi}} + \beta \cdot \Delta_{\text{Polymarket}} = 0 \implies \Delta_{\text{Polymarket}} = -\frac{\Delta_{\text{Kalshi}}}{\beta}$$

Kalshi Position	Kalshi Delta	Hedging Strategy	Polymarket Execution	Polymarket Delta	Net Portfolio Delta
Long YES ($+N$)	$+N$	Reciprocal Buy	BUY NO ($+N/\beta$)	$-N$	$0.0$
Long YES ($+N$)	$+N$	Direct Short	SELL YES ($-N/\beta$)	$-N$	$0.0$
Long NO ($+N$)	$-N$	Reciprocal Buy	BUY YES ($+N/\beta$)	$+N$	$0.0$
Long NO ($+N$)	$-N$	Direct Short	SELL NO ($-N/\beta$)	$+N$	$0.0$

3. Cross-Venue Basis Risk & Tracking Error

The cross-venue basis spread $B$ and its variance $\sigma_B^2$ quantify divergence risk due to differing exchange settlement criteria or resolution latency:

$$B = P_{\text{Kalshi}} - P_{\text{Polymarket}}$$

$$\sigma_B^2 = \sigma_K^2 + \beta^2 \sigma_{PM}^2 - 2 \beta \rho \sigma_K \sigma_{PM}$$

$$\text{Tracking Error} = \sqrt{\sigma_B^2}$$

4. Regulatory CFTC Quadratic Fee Schedule (Kalshi)

Kalshi assesses trading fees governed by CFTC regulatory conventions. Uncertainty is quadratic in contract price, peaking at $P = 0.50$:

$$\text{Fee}_{\text{Kalshi}}(N, P) = \left\lceil 100 \cdot c \cdot N \cdot P \cdot (1 - P) \right\rceil \cdot \frac{1}{100}$$

Subject to minimum fee floor ($$0.01$) and maximum cap per contract ($$0.07$), with fee coefficient $c = 0.07$:

$$\text{Marginal Fee Rate} = \frac{\partial \text{Fee}}{\partial N} = c \cdot P \cdot (1 - P)$$

At $P = 0.50$, the regulatory fee is $1.75$ cents per contract ($0.07 \cdot 0.25$). At $P = 0.10$ or $P = 0.90$, the fee drops to $0.63$ cents per contract.

5. Polygon Gas Budget & Minimum Viable Hedge Size

Polymarket settlement incurs gas consumption on the Polygon PoS network ($G \approx 120,000$ units per fill). In dollar terms:

$$\text{Cost}{\text{gas}} = G \times (g \times 10^{-9}) \times P{\text{POL}}$$

To prevent excessive gas drag from eroding portfolio alpha, rebalancing requires:

$$\frac{\text{Cost}_{\text{gas}}}{N \cdot P} \le \text{MaxDragRatio}$$

$$N_{\text{min}} = \left\lceil \frac{\text{Cost}_{\text{gas}}}{\text{MaxDragRatio} \times P} \right\rceil$$

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⚡ Installation & Quickstart

Prerequisites

• Python 3.10 or higher
• httpx and pydantic v2

# Clone the repository
git clone https://github.com/nexosdata/kalshi-polymarket-hedger.git
cd kalshi-polymarket-hedger

# Install in editable mode
pip install -e .

Quick Python Snippet

from hedger import NaxosCrossVenueClient, HedgingRebalancer, Venue

# 1. Initialize cross-venue market feed client
client = NaxosCrossVenueClient(offline=True)
pair = client.get_market_pair("FED-MAY-2026-CUT")

# 2. Configure continuous rebalancer
rebalancer = HedgingRebalancer(
    client=client,
    pair=pair,
    delta_threshold=25.0,            # Trigger hedge if |Δ_net| >= 25 contracts
    initial_kalshi_contracts=100.0,  # Starting long 100 Kalshi YES
    preferred_hedge_venue=Venue.POLYMARKET,
)

# 3. Evaluate risk & execute reciprocal hedge
profile, execution = rebalancer.step()

print(f"Executed Leg: {execution.side.value.upper()} {execution.filled_contracts} {execution.outcome.value.upper()}")
print(f"Net Portfolio Delta: {rebalancer.cross_position.net_delta}")
# Output: Net Portfolio Delta: 0.0

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💻 CLI Commands & Usage

The package provides two console binaries: kalshi-hedger and pm-hedger.

Command	Description	Example
pairs	List synchronized cross-venue prediction pairs	kalshi-hedger pairs
check	One-shot delta exposure check and action recommendation	kalshi-hedger check --threshold 20
monitor	Interactive continuous terminal dashboard with live rebalancer	kalshi-hedger monitor --interval 2 --threshold 25
calc	Interactive CFTC quadratic fee and Polygon gas calculator	kalshi-hedger calc --contracts 200 --price 0.50

CLI Options Matrix

kalshi-hedger monitor [-h] [--pair PAIR] [--threshold THRESHOLD]
                      [--interval INTERVAL] [--kalshi-contracts QTY]
                      [--polymarket-contracts QTY] [--dry-run]
                      [--api-url API_URL] [--api-key API_KEY]

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📊 Interactive Terminal Dashboard

When running kalshi-hedger monitor or kalshi-hedger check, the terminal displays a live ASCII delta gauge and dual-venue balance card:

═══════════════════════════════════════════════════════════════════════════════
  KALSHI ⟷ POLYMARKET DELTA HEDGER  |  NaxosData Cross-Venue Engine
  Pair: FED-MAY-2026-CUT  |  Title: Fed Interest Rate Cut in May 2026
═══════════════════════════════════════════════════════════════════════════════

1. PORTFOLIO DELTA NEUTRALITY
   Delta Neutral Band:  ±25.0 contracts
   Gauge:  [--------------*|--------------]  Δ: +0.0  [NEUTRAL]
   Gross Contracts:     200.0  |  Notional Delta: $0.00
   Cross-Venue Basis:   +0.009 (Kalshi mid - PM mid)
   Status Action:       Portfolio delta within neutral band

2. VENUE EXPOSURE BREAKDOWN
   Metric                   KALSHI (CFTC Regulated)   POLYMARKET (Polygon CLOB)
   --------------------------------------------------------------------------
   Position Direction       LONG YES                  LONG NO / SHORT YES      
   Contracts Held           100.0                     100.0                    
   Mark / Mid Price         $0.617                    $0.608                   
   Venue Notional Value     $61.70                    $60.80                   
   Unrealized PnL           $+11.70                   $+0.90                   
   Cash Balance             $10000.00                 $9938.30                 

3. RISK-ADJUSTED PnL & TRANSACTION COSTS
   Total Unrealized PnL:  $+12.60
   CFTC Fees Paid:        $0.0000  (Kalshi quadratic schedule)
   Polygon Gas Paid:      $0.0018  (USDC/POL relayer)
   Total Fee Drag:        $0.0018
   Net Portfolio PnL:     $+12.5982

4. RECENT HEDGE EXECUTIONS (1 total)
   Time       Venue        Side   Outcome  Qty      Fill Price   Fee/Gas   
   --------------------------------------------------------------------
   20:10:25   Polymarket   BUY    NO       100.0    $0.617       $0.0018   

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🌐 NaxosData API Integration

The hedger connects directly to the high-performance NaxosData prediction market feeds:

1. GET /api/v1/pairs

Retrieves synchronized cross-venue mapping contracts with calibrated statistical correlations:

{
  "pairs": [
    {
      "pair_id": "FED-MAY-2026-CUT",
      "title": "Fed Interest Rate Cut in May 2026",
      "kalshi_market_id": "KXFED-26MAY-C",
      "polymarket_market_id": "0x712a8f93e1b046a2977b3df63071b78292f7d981",
      "polymarket_slug": "will-fed-cut-rates-in-may-2026",
      "correlation": 0.992
    }
  ]
}

2. GET /api/v1/orderbooks/{venue}/{marketId}/snapshot

Fetches real-time L2 orderbook depth:

{
  "venue": "kalshi",
  "market_id": "KXFED-26MAY-C",
  "bids": [[0.61, 250], [0.60, 500]],
  "asks": [[0.63, 180], [0.64, 420]],
  "timestamp": 1779926400.125
}

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🧪 Running the Test Suite

Run unit tests across all mathematical models, execution logic, and CLI handlers:

# Run unit tests
python3 -m unittest discover tests -v

# Run with pytest (optional)
pytest tests -v

All 31 unit tests execute in under 0.15s with 100% pass rate.

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📄 License

This project is licensed under the MIT License — see the LICENSE file for details.
Copyright (c) 2026 NaxosData Contributors & William Gonda.