How Polymarket Order Book Data and Chainlink TWAP Can Estimate Fair BTC Probabilities

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A quantitative research approach proposes combining Polymarket order-book prices with Chainlink TWAP data to better estimate fair probabilities in short-term Bitcoin prediction markets. Polymarket's BTC Up/Down markets resolve based on Chainlink's BTC/USD Data Stream rather than arbitrary spot exchange prices, making the two price signals distinct and non-interchangeable. The framework separates market-implied probability derived from order-book data from the underlying reference price supplied by Chainlink, treating them as complementary layers of information. A simplified Black-Scholes binary option model is suggested as a research tool to generate a probability distribution, which can then be compared against the market price to identify a potential model edge. Researchers caution that the Black-Scholes component depends heavily on volatility assumptions and should not be treated as a definitive oracle for market resolution outcomes.

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