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552 sats \ 2 replies \ @south_korea_ln 9h \ on: Predyx Just Got Bigger: User-Created Markets Are Live oracle
Maybe I missed it somewhere, but what happens to the bootstrap liquidity after resolution of the market? Send it back to the market creator who provided the initial liquidity?
In LMSR the initial bootstrap liquidity is basically worst-case-loss (WCL). That's why its known as Liquidity Subsidy.
For example the market (Kash Patel) you created with 20k sats as liquidity and with the win probability of 15%.
Your initial cost = Global WCL = 37,943 sats.
What this means is, if NO wins, your market will incur a loss of 3251 sats, and if YES wins, your market will incur a loss of 37943 sats.
Best case loss:
If NO wins, you will receive 37943 - 3251 = approx 34,692 sats + fees collected.
Worst case loss:
if YES wins, you will receive 37943 - 37943 = approx 0 sats + fees collected.
The default market fees are very low at this time (buy: 0.45%, sell: 0.35%, win: 0.20%), and with current volume it will be very difficult to make profits from the liquidity provided.
My suggestion:
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If you're creating the market with the intention to make profit from liquidity provided, then either you must increase the fees. Max fees allowed on Predyx is 5% for each buy/sell/win. Or you will have to proactively trade on your market to cover the liquidity subsidy.
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If you're creating a market to elicit any valuable information that you might not be able to get from traditional media source, consider you liquidity as cost of seeking the valuable information.
Our current solution to deal with creators loss, due to low volume is to add the tipping functionality for creator to cover for the losses. When the trader of your market will rate your resolution, they will have the opportunity to tip the creator to cover the loss or possibly make more profits. At the time of rating, your trader will be able to see creators profit/loss from liquidity/fees. And make a moral judgement to tip or not.
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Very useful, thank you!
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