To bootstrap liquidity on PlotX prediction markets, the market creators are required to add initial liquidity, similar to how projects add liquidity to their Uniswap pairs.
Here’s a primer on how liquidity provision in PlotX works:
PlotX prediction markets follow the zero-sum game approach
Each market has three options available and the winning option gets the combined amount put at stake in the other two options
When a market is configured on PlotX, the market creator has to provide bootstrapping liquidity across all 3 options of the market
In return, the market creator gets back ⅓ of their initial liquidity and two types of incentives:
Prediction Fees - A portion of the prediction fees from all the predictions placed in the market
Reward Pool Share - A dynamically calculated reward based on the market state (more details further)
Let’s take a look at a hypothetical market to understand the market creators’ incentives better:
Market creator’s liquidity
Total Liquidity in the option
Potential reward pool
Reward pool share
In the above hypothetical market, the total liquidity in the market is $150,000 and the liquidity provided by the market creator is $12,000.
The market creator’s incentives in the above scenario will be:
Initial Liquidity Return
Reward Pool Share
⅓ of the initial liquidity
0.8% of the total liquidity
This depends on which option ends up winning
⇒ The market creator got a 10% return on their initial investment (the initial liquidity they provided)
The above example is of a hypothetical market. Real markets may not play out in the same manner as above. Market creators’ rewards depend on many different factors like the total liquidity, liquidity spread between the three options etc.
As more and more markets are created on PlotX, we will get more real-world data from the app. This data will be used to adjust the market creator’s incentives to keep them in a profitable position.