Market Makers
The primary objective of the market maker scheme is to ensure consistent liquidity and price stability on the platform. This is crucial in derivatives markets, where the depth and breadth of the order book directly impact the execution and pricing of trades. By engaging designated market makers (DMMs), the platform aims to facilitate smoother transactions, reduce slippage, and enhance the overall trading experience for all participants.
Designated Market Makers (DMMs)
Selection Criteria: DMMs would be selected based on their financial robustness, trading expertise, and technological capabilities. They must demonstrate a capability to maintain tight spreads and substantial order book depth across varying market conditions.
Number of DMMs: Initially, a maximum of 4 DMMs will be engaged to ensure diverse and competitive market-making activities.
Incentives and Support
Transaction Fee Redistribution: To incentivise market-making activities, 40% of transaction fees collected by the platform will be redistributed to DMMs. This approach ensures that market makers are rewarded for their services, aligning their interests with the platform's liquidity needs.
Performance-Based Rewards: The redistribution of fees are being structured to reward DMMs based on performance metrics such as spread maintenance, order book depth, and trading volume generated. This encourages competitive and efficient market-making.
Operational Support: The platform may provide operational support to DMMs, including technical advice, detailed mathematics, and technical assistance. This support is crucial for DMMs to execute their strategies effectively.
Sustainability and Monitoring
Regular Assessments: The performance of DMMs will be regularly assessed to ensure they meet predefined liquidity and market efficiency criteria. This could include periodic reviews of spreads, order book resilience, and response to market volatility.
Stable Incentive Structure: To provide a predictable and stable environment for Designated Market Makers (DMMs), the platform operator will maintain a consistent incentive structure. This stability is key to allowing DMMs to plan and execute their market-making strategies effectively over the long term.
Transparent Operations and Value Clarity: The platform operator will prioritise transparency in its operations, particularly in the dissemination of information related to market-making activities and incentive structures. This transparency is crucial in ensuring that all participants, including DMMs, have a clear understanding of the market dynamics and the value they derive from participating in the platform.
Open Communication Channels: Regularly updated information and open communication channels will be established, allowing DMMs and other platform users to access real-time data and insights. This openness will facilitate informed decision-making and foster a collaborative ecosystem where value creation is visible and understandable to all stakeholders.
KPIs
Bid-Ask Spread: The difference between the highest bid price and the lowest ask price in the market. Narrower spreads indicate better liquidity and market efficiency.
Order Book Depth: Measures the volume of orders at various price levels close to the market price. A deeper order book signifies stronger liquidity and the ability of the market to absorb large orders without significant price impact.
Time at Best Bid/Ask: The amount of time a DMM's bid or ask is the best (highest bid or lowest ask) on the platform. This reflects the competitiveness and responsiveness of the DMM.
Order Fulfilment Rate: The percentage of orders placed by DMMs that are filled. A high fulfilment rate shows that the DMM is effectively creating a market where orders are consistently well priced.
Price Tuning
The design of the contracts created by the platform operator is carefully configured to optimise the balance between contract sizes and fee structures, thereby facilitating a conducive trading landscape for market makers and liquidity providers including designated market makers. Thereby fostering a trading environment conducive to liquidity provision where market makers can derive value from the bid/offer spread.
The platform's transaction fee model is finely tuned to be minimal, promoting a cost-effective trading experience. This approach ensures that market makers can leverage small price fluctuations for potential gains without the burden of prohibitive costs. Furthermore, the integration of a modest gas fee structure complements the low transaction fees, supporting a high turnover rate and efficient trading strategies for market participants.
Designated market makers find this environment particularly conducive to their role in sustaining liquidity. The platform's contract specifications are deliberately aligned to encourage their ongoing engagement by enabling a profitable market-making strategy. Regular market makers and liquidity providers are equally positioned to benefit from the platform's configuration, which is designed to provide all liquidity providers with the opportunity to profit from market activity.
Additional Incentives
A significant portion of the protocol token allocation is reserved to assist with this incentive, for community rewards and to assist in the provision of liquidity if the protocol token is exchange listed. These are part of the protocol token and are described here for convenience.
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