> ## 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.
# Liquidity Rewards
> Polymarket provides incentives aimed at catalyzing the supply and demand side of the marketplace. Specifically there is a public liquidity rewards program as well as one-off public pnl/volume competitions.
## Overview
By posting resting limit orders, liquidity providers (makers) are automatically eligible for Polymarket's incentive program. The overall goal of this program is to catalyze a healthy, liquid marketplace. We can further define this as creating incentives that:
* Catalyze liquidity across all markets
* Encourage liquidity throughout a market's entire lifecycle
* Motivate passive, balanced quoting tight to a market's mid-point
* Encourages trading activity
* Discourages blatantly exploitative behaviors
This program is heavily inspired by dYdX's liquidity provider rewards which you can read more about [here](https://www.dydx.foundation/blog/liquidity-provider-rewards). In fact, the incentive methodology is essentially a copy of dYdX's successful methodology but with some adjustments including specific adaptations for binary contract markets with distinct books, no staking mechanic a slightly modified order utility-relative depth function and reward amounts isolated per market. Rewards are distributed directly to the maker's addresses daily at midnight UTC.
## Methodology
Polymarket liquidity providers will be rewarded based on a formula that rewards participation in markets (complementary consideration!), boosts two-sided depth (single-sided orders still score), and spread (vs. mid-market, adjusted for the size cutoff!). Each market still configure a max spread and min size cutoff within which orders are considered the average of rewards earned is determined by the relative share of each participant's Qn in market m.
| Variable | Description |
| -------------- | ---------------------------------------------------------------- |
| \$ | order position scoring function |
| v | max spread from midpoint (in cents) |
| s | spread from size-cutoff-adjusted midpoint |
| b | in-game multiplier |
| m | market |
| m' | market complement (i.e NO if m = YES) |
| n | trader index |
| u | sample index |
| c | scaling factor (currently 3.0 on all markets) |
| Qne | point total for book one for a sample |
| Qno | point total for book two for a sample |
| Spread% | distance from midpoint (bps or relative) for order n in market m |
| BidSize | share-denominated quantity of bid |
| AskSize | share-denominated quantity of ask |
## Equations
**Equation 1:**
$S(v,s)= (\frac{v-s}{v})^2 \cdot b$
**Equation 2:**
$Q_{one}= S(v,Spread_{m_1}) \cdot BidSize_{m_1} + S(v,Spread_{m_2}) \cdot BidSize_{m_2} + \dots $
$ + S(v, Spread_{m^\prime_1}) \cdot AskSize_{m^\prime_1} + S(v, Spread_{m^\prime_2}) \cdot AskSize_{m^\prime_2}$
**Equation 3:**
$Q_{two}= S(v,Spread_{m_1}) \cdot AskSize_{m_1} + S(v,Spread_{m_2}) \cdot AskSize_{m_2} + \dots $
$ + S(v, Spread_{m^\prime_1}) \cdot BidSize_{m^\prime_1} + S(v, Spread_{m^\prime_2}) \cdot BidSize_{m^\prime_2}$
**Equation 4:**
**Equation 4a:**
If midpoint is in range \[0.10,0.90] allow single sided liq to score:
$Q_{\min} = \max(\min({Q_{one}, Q_{two}}), \max(Q_{one}/c, Q_{two}/c))$
**Equation 4b:**
If midpoint is in either range \[0,0.10) or (.90,1.0] require liq to be double sided to score:
$Q_{\min} = \min({Q_{one}, Q_{two}})$
**Equation 5:**
$Q_{normal} = \frac{Q_{min}}{\sum_{n=1}^{N}{(Q_{min})_n}}$
**Equation 6:**
$Q_{epoch} = \sum_{u=1}^{10,080}{(Q_{normal})_u}$
**Equation 7:**
$Q_{final}=\frac{Q_{epoch}}{\sum_{n=1}^{N}{(Q_{epoch})_n}}$
## Steps
1. Quadratic scoring rule for an order based on position between the adjusted midpoint and the minimum qualifying spread
2. Calculate first market side score. Assume a trader has the following open orders:
* 100Q bid on m @0.49 (adjusted midpoint is 0.50 then spread of this order is 0.01 or 1c)
* 200Q bid on m @0.48
* 100Q ask on m' @0.51
and assume an adjusted market midpoint of 0.50 and maxSpread config of 3c for both m and m'. Then the trader's score is:
$$
Q_{ne} = \left( \frac{(3-1)}{3} \right)^2 \cdot 100 + \left( \frac{(3-2)}{3} \right)^2 \cdot 200 + \left( \frac{(3-1)}{3} \right)^2 \cdot 100
$$
$Q_{ne}$ is calculated every minute using random sampling
3. Calculate second market side score. Assume a trader has the following open orders:
* 100Q bid on m @0.485
* 100Q bid on m' @0.48
* 200Q ask on m' @0.505
and assume an adjusted market midpoint of 0.50 and maxSpread config of 3c for both m and m'. Then the trader's score is:
$$
Q_{no} = \left( \frac{(3-1.5)}{3} \right)^2 \cdot 100 + \left( \frac{(3-2)}{3} \right)^2 \cdot 100 + \left( \frac{(3-.5)}{3} \right)^2 \cdot 200
$$
$Q_{no}$ is calculated every minute using random sampling
4. Boosts 2-sided liquidity by taking the minimum of $Q_{ne}$ and $Q_{no}$, and rewards 1-side liquidity at a reduced rate (divided by c)
Calculated every minute
5. $Q_{normal}$ is the $Q_{min}$ of a market maker divided by the sum of all the $Q_{min}$ of other market makers in a given sample
6. $Q_{epoch}$ is the sum of all $Q_{normal}$ for a trader in a given epoch
7. $Q_{final}$ normalizes $Q_{epoch}$ by dividing it by the sum of all other market maker's $Q_{epoch}$ in a given epoch this value is multiplied by the rewards available for the market to get a trader's reward
Both min\_incentive\_size and max\_incentive\_spread can be fetched alongside full market objects via both the CLOB API and Markets API. Reward allocations for an epoch can be fetched via the Markets API.