dYdX: Liquidity Providers' Incentive Programme Review
Abstract
Liquidity providers are currently incentivised to provide liquidity through the LP Incentives Programme on dYdX. Based on the various parameters - makerVolume, depths and spreads, they are rewarded accordingly based on their activities. Given the maturity of the BTC and ETH markets, alongside other altcoins which enjoy a consistent amount of liquidity, this paper aims to update the formula to encourage more active and efficient liquidity, improving the overall trading experience. In this research, I begin by providing a basic understanding of spread management, before introducing the methodology with the various metrics and conditions. This includes gathering orderbooks on a minute interval and reconstructing the depths based on historical trades to establish an upper bound. I end off by providing recommendations to update the maxSpread parameter and alternative mechanisms/solutions to improve the existing market structures.
Keywords
Cite
@article{arxiv.2307.03935,
title = {dYdX: Liquidity Providers' Incentive Programme Review},
author = {Colin Chan},
journal= {arXiv preprint arXiv:2307.03935},
year = {2023}
}