As mentioned in the draft whitepaper of the chain, liquidity issue is one of the major stumbling blocks that stop the industry from accelerating the decentralization progress.
In the context of decentralized trading platform, the drawback of liquidity is even more obvious. Surely, the technology limit - having not seen truly effective interoperability across different chains - caused stagnation in DEX development progress, but we should not ignore the importance of incentives to the liquidity providers.
My proposal is mainly about adding such incentive functionality to the chain.
Describe The Proposal (No more than 50 words)
A “placing order as mining” functionality encourages as many participants in the ecosystem to contribute to stronger liquidity as possible.
Business Model (Optional for underlying technology)
I believe that the future plan would be serving multiple DEXs and DeFis, the liquidity (order books) of which are shared, otherwise there won’t be mentioning of LSP in the white paper.
However, the most difficult part for a new-launched DEX or DeFi is lack of true liquidity - indicated by the orders placed the closest (Top xx, Ranking) to the market price of a certain coin - which is the major target to boost in this proposal.
Users get incentives, or mining rewards, by placing maker orders; while takers and the wider range of users enjoy better liquidity; furthermore, the DEXs record larger trading volume and transaction fee income; ultimately, the chain sees more gas fees that can be reinvested in catering a more flourish ecosystem, which will further attract more participants and contributors to the ecosystem - virtuous circle and sustainable development.
Implementation Steps (Optional for economic model)
In general, the mechanism should work from the following aspects:
· Who are incentivized: liquidity providers who place the top 20 (a configurable number, leave it to be decided by the DEXs) orders;
· Time configuration: this decides the frequency to distribute the mining rewards;
· Rewards payment method: in which token will the rewards be distributed (DEX’s platform token or other coins), asking for the asset issuance functionality of the chain;
· Rewards amount: a configurable module of the rewards amount distributed per frequence (daily for example);
· Target trading pairs: a configurable module for the DEX to decide on which coins/tokens it applies the incentives mechanism;
· Rewards calculation fomula (all maker orders):
Mining rewards weighting: ask order = 50% * bid order (same level, both are the best price, “best bid” compared with “lowest ask”);
Rewards diminish: by 50% as the ranking goes down by one level (as follows for example);
Ranking(Bid)
Weighting
Ranking(Ask)
Weighting
Best Bid(Top1)
10
Best Ask(Top 1)
5
Top 2-5
5
Top 2-5
2.5
Top 6-10
2.5
Top 6-10
1.25
Top 11-20
1.25
Top 11-20
0.625
Unit reward (X): the reward paid out per time configuration (decided by the DEX);
Ming marks: (this virable is used to later calculate the liquidity provider’s reward, which should be calculated in single trading pair respectively, and since the unit timetable is set as minute, the system should have the function to automatically take snapshot of the order book data and apply them to the following formulas)
Mining marks = Order Volume * Weighting
Individual order volume: V
Personal mining marks = V*Wi (i=1, 2, 3, 4)
Weighting coefficient: Wi (i=1, 2, 3, 4)
The total volume of each ranking: Vi (i=1, 2, 3, 4, ....19, 20)
*X)
Expected Outcome
As elaborated above, with this functionality, the chain will be able to better serve DEXs, given that the liquidity issue will be addressed more properly by this sustainably encouraging incentive method together with the Liquidity Sharing Protocol designed natively in the chain, which is more likely to cultivate a flourish ecosystem soon enough.
Type of Proposal
[x] Feature Request (e.g. functionality)
[ ] Economic Model
[ ] Underlying Technology (e.g. performance)
[ ] Application Development
[ ] Others
Background
As mentioned in the draft whitepaper of the chain, liquidity issue is one of the major stumbling blocks that stop the industry from accelerating the decentralization progress.
In the context of decentralized trading platform, the drawback of liquidity is even more obvious. Surely, the technology limit - having not seen truly effective interoperability across different chains - caused stagnation in DEX development progress, but we should not ignore the importance of incentives to the liquidity providers.
My proposal is mainly about adding such incentive functionality to the chain.
Describe The Proposal (No more than 50 words)
A “placing order as mining” functionality encourages as many participants in the ecosystem to contribute to stronger liquidity as possible.
Business Model (Optional for underlying technology)
I believe that the future plan would be serving multiple DEXs and DeFis, the liquidity (order books) of which are shared, otherwise there won’t be mentioning of LSP in the white paper.
However, the most difficult part for a new-launched DEX or DeFi is lack of true liquidity - indicated by the orders placed the closest (Top xx, Ranking) to the market price of a certain coin - which is the major target to boost in this proposal.
Users get incentives, or mining rewards, by placing maker orders; while takers and the wider range of users enjoy better liquidity; furthermore, the DEXs record larger trading volume and transaction fee income; ultimately, the chain sees more gas fees that can be reinvested in catering a more flourish ecosystem, which will further attract more participants and contributors to the ecosystem - virtuous circle and sustainable development.
Implementation Steps (Optional for economic model) In general, the mechanism should work from the following aspects: · Who are incentivized: liquidity providers who place the top 20 (a configurable number, leave it to be decided by the DEXs) orders; · Time configuration: this decides the frequency to distribute the mining rewards; · Rewards payment method: in which token will the rewards be distributed (DEX’s platform token or other coins), asking for the asset issuance functionality of the chain; · Rewards amount: a configurable module of the rewards amount distributed per frequence (daily for example); · Target trading pairs: a configurable module for the DEX to decide on which coins/tokens it applies the incentives mechanism; · Rewards calculation fomula (all maker orders): Mining rewards weighting: ask order = 50% * bid order (same level, both are the best price, “best bid” compared with “lowest ask”); Rewards diminish: by 50% as the ranking goes down by one level (as follows for example);
Unit reward (X): the reward paid out per time configuration (decided by the DEX); Ming marks: (this virable is used to later calculate the liquidity provider’s reward, which should be calculated in single trading pair respectively, and since the unit timetable is set as minute, the system should have the function to automatically take snapshot of the order book data and apply them to the following formulas)
Mining marks = Order Volume * Weighting
Individual order volume: V
Personal mining marks = V*Wi (i=1, 2, 3, 4)
Weighting coefficient: Wi (i=1, 2, 3, 4)
The total volume of each ranking: Vi (i=1, 2, 3, 4, ....19, 20)
Expected Outcome As elaborated above, with this functionality, the chain will be able to better serve DEXs, given that the liquidity issue will be addressed more properly by this sustainably encouraging incentive method together with the Liquidity Sharing Protocol designed natively in the chain, which is more likely to cultivate a flourish ecosystem soon enough.
Timetable (Optional)
Not available.
Additional Context (Optional)
Not available.
Contact Information
April_FY@outlook.com