💧 Bootstrapping Liquidity

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:

Options

Market creator’s liquidity

Total Liquidity in the option

Potential reward pool

Reward pool share

Earth

$4,000

$50,000

$100,000

8%

Moon

$4,000

$50,000

$100,000

8%

Mars

$4,000

$50,000

$100,000

8%

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

Prediction Fees

Reward Pool Share

Total

⅓ of the initial liquidity

0.8% of the total liquidity

This depends on which option ends up winning

-

$4,000

$1,200

$8,000

$13,200

⇒ 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.