AI Agent
b2a29fe51f
- Added new documentation URLs from llms.txt index - Updated TARGET.md with 244 total documentation pages - Scraped new pages for trading, concepts, and API reference sections - Updated changelog and new index pages
167 lines
6.6 KiB
Markdown
167 lines
6.6 KiB
Markdown
> ## 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
|
||
|
||
> Earn rewards for providing liquidity on Polymarket
|
||
|
||
By posting resting limit orders, liquidity providers (makers) are automatically eligible for Polymarket's incentive program. Rewards are distributed directly to maker addresses daily at midnight UTC.
|
||
|
||
The program is designed to:
|
||
|
||
* Catalyze liquidity across all markets
|
||
* Encourage liquidity throughout a market's entire lifecycle
|
||
* Motivate passive, balanced quoting tight to a market's midpoint
|
||
* Encourage trading activity
|
||
* Discourage blatantly exploitative behaviors
|
||
|
||
<Info>
|
||
This program is heavily inspired by [dYdX's liquidity provider
|
||
rewards](https://www.dydx.foundation/blog/liquidity-provider-rewards). The
|
||
methodology is essentially a copy of dYdX's approach with adjustments for
|
||
binary contract markets — distinct books, no staking mechanic, a modified
|
||
order utility-relative depth function, and reward amounts isolated per market.
|
||
</Info>
|
||
|
||
***
|
||
|
||
## Methodology
|
||
|
||
Liquidity providers are rewarded based on a formula that rewards participation in markets, boosts two-sided depth (single-sided orders still score), and tighter spread vs the size-cutoff-adjusted midpoint. Each market configures 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 Q<sub>n</sub> in market m.
|
||
|
||
### Variables
|
||
|
||
| Variable | Description |
|
||
| -------------- | ---------------------------------------------------------------- |
|
||
| S | 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) |
|
||
| Q<sub>ne</sub> | Point total for book one for a sample |
|
||
| Q<sub>no</sub> | 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
|
||
|
||
### 1. Order Scoring Function
|
||
|
||
Quadratic scoring rule for an order based on position between the adjusted midpoint and the minimum qualifying spread:
|
||
|
||
$S(v,s)= (\frac{v-s}{v})^2 \cdot b$
|
||
|
||
### 2. First Market Side Score (Q<sub>ne</sub>)
|
||
|
||
$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}$
|
||
|
||
### 3. Second Market Side Score (Q<sub>no</sub>)
|
||
|
||
$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}$
|
||
|
||
### 4. Minimum Score (Q<sub>min</sub>)
|
||
|
||
Boosts two-sided liquidity by taking the minimum of Q<sub>ne</sub> and Q<sub>no</sub>, while still rewarding single-sided liquidity at a reduced rate (divided by c).
|
||
|
||
**If midpoint is in range \[0.10, 0.90]** — single-sided liquidity can score:
|
||
|
||
$Q_{\min} = \max(\min({Q_{one}, Q_{two}}), \max(Q_{one}/c, Q_{two}/c))$
|
||
|
||
**If midpoint is in range \[0, 0.10) or (0.90, 1.0]** — liquidity must be double-sided to score:
|
||
|
||
$Q_{\min} = \min({Q_{one}, Q_{two}})$
|
||
|
||
### 5. Normalized Score (Q<sub>normal</sub>)
|
||
|
||
Q<sub>min</sub> of a market maker divided by the sum of all Q<sub>min</sub> across market makers in a given sample:
|
||
|
||
$Q_{normal} = \frac{Q_{min}}{\sum_{n=1}^{N}{(Q_{min})_n}}$
|
||
|
||
### 6. Epoch Score (Q<sub>epoch</sub>)
|
||
|
||
Sum of all Q<sub>normal</sub> for a trader across all samples in an epoch:
|
||
|
||
$Q_{epoch} = \sum_{u=1}^{10,080}{(Q_{normal})_u}$
|
||
|
||
### 7. Final Score (Q<sub>final</sub>)
|
||
|
||
Normalizes Q<sub>epoch</sub> by dividing by the sum of all market makers' Q<sub>epoch</sub> in a given epoch. This value is multiplied by the rewards available for the market to get a trader's reward:
|
||
|
||
$Q_{final}=\frac{Q_{epoch}}{\sum_{n=1}^{N}{(Q_{epoch})_n}}$
|
||
|
||
***
|
||
|
||
## Worked Example
|
||
|
||
Assume an adjusted market midpoint of 0.50 and a max spread config of 3 cents for both m and m'.
|
||
|
||
### Step 2 — First Side Score
|
||
|
||
A trader has the following open orders:
|
||
|
||
* 100Q bid on m @ 0.49 (spread = 1 cent)
|
||
* 200Q bid on m @ 0.48 (spread = 2 cents)
|
||
* 100Q ask on m' @ 0.51 (spread = 1 cent)
|
||
|
||
$$
|
||
Q_{ne} = \left( \frac{(3-1)}{3} \right)^2 \cdot 100 + \left( \frac{(3-2)}{3} \right)^2 \cdot 200 + \left( \frac{(3-1)}{3} \right)^2 \cdot 100
|
||
$$
|
||
|
||
Q<sub>ne</sub> is calculated every minute using random sampling.
|
||
|
||
### Step 3 — Second Side Score
|
||
|
||
The same trader also has:
|
||
|
||
* 100Q bid on m @ 0.485 (spread = 1.5 cents)
|
||
* 100Q bid on m' @ 0.48 (spread = 2 cents)
|
||
* 200Q ask on m' @ 0.505 (spread = 0.5 cents)
|
||
|
||
$$
|
||
Q_{no} = \left( \frac{(3-1.5)}{3} \right)^2 \cdot 100 + \left( \frac{(3-2)}{3} \right)^2 \cdot 100 + \left( \frac{(3-.5)}{3} \right)^2 \cdot 200
|
||
$$
|
||
|
||
Q<sub>no</sub> is calculated every minute using random sampling.
|
||
|
||
### Steps 4–7
|
||
|
||
4. Take the minimum of Q<sub>ne</sub> and Q<sub>no</sub> (with single-sided adjustment if midpoint is in \[0.10, 0.90])
|
||
5. Normalize against all other market makers in the sample
|
||
6. Sum across all 10,080 samples in the epoch
|
||
7. Normalize again to get final reward share
|
||
|
||
***
|
||
|
||
<Note>
|
||
The minimum reward payout is **\$1**; amounts below this will not be paid.
|
||
</Note>
|
||
|
||
<Tip>
|
||
Both `min_incentive_size` and `max_incentive_spread` can be fetched alongside
|
||
full market objects via the CLOB API and [Markets
|
||
API](/market-data/fetching-markets). Reward allocations for an epoch can also
|
||
be fetched via the Markets API.
|
||
</Tip>
|
||
|
||
## Next Steps
|
||
|
||
<CardGroup cols={2}>
|
||
<Card title="Trading" icon="chart-line" href="/market-makers/trading">
|
||
Order entry and quoting best practices
|
||
</Card>
|
||
|
||
<Card title="Maker Rebates" icon="receipt" href="/market-makers/maker-rebates">
|
||
Earn USDC rebates on 15-minute crypto markets
|
||
</Card>
|
||
</CardGroup>
|