Liquidity Rewards Example

4min
Liquidity rewards are designed to incentivize market participants to provide liquidity by placing orders on both the bid and ask sides of the order book. By offering rewards based on factors like price range, order size, and the duration an order remains on the book, the platform encourages users to contribute to market depth and stability. This system includes parameters such as the maximum spread between bid and ask prices, minimum share requirements, and a scaling factor that increases rewards for orders placed on both sides of the market. Rewards are recalculated every minute and paid out automatically at the end of the day.
Given Example Liquidity Rewards Setup
Total Rewards: 1000 units (rewards can be paid out in any ERC20 token)
Max Spread: 0.1 (maximum allowable price difference between best bid and best ask)
Minimum Share: 100 shares
In-Game Multiplier: 1 (no additional multiplier for this example)
Scaling Factor: 3 (encouraging orders on both sides of the order book)
Best Ask Price: 0.6
Best Bid Price: 0.5
To calculate the midpoint price:
Midpoint = (Best Ask Price + Best Bid Price) / 2
= (0.6 + 0.5) / 2 = 0.55
Adjusted Midpoint Calculation (with range adjustments for max spread):
Range = ±0.1 of the midpoint, so the allowable range is from 0.45 to 0.65.
To qualify for liquidity rewards, orders need to meet the following criteria:
The order must be placed within the allowable price range (between 0.45 and 0.65) on any side.
The order must contain at least 100 shares.
Sample Orders Qualification
Order 1: Bid at 0.51 for 150 shares
This order is within the adjusted price range and meets the minimum share requirement (100 shares).
It qualifies for rewards.
Order 2: Ask at 0.6 for 50 shares
This order is within the allowable price range, but it does not meet the minimum share requirement (50 shares instead of 100).
This order does not qualify for rewards.
Order 3: Bid at 0.52 for 120 shares
This order is within the price range (0.45 to 0.65) and meets the minimum share requirement.
It qualifies for rewards.
Order 4: Ask at 0.55 for 200 shares
This order is within the adjusted range and exceeds the minimum share requirement.
It qualifies for rewards.
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Liquidity Calculation Equations
Leaderboard Rewards