Jared Kehlmann, Market Curator & Community Manager
Liam Kovatch, Head of Engineering
Dylan Golow, Technical Product Manager
Proposal to extend UMA-denominated liquidity mining rewards on Polymarket.
In January, Polymarket, the largest decentralized prediction markets platform in the world, began supporting UMA’s Optimistic Oracle as the primary resolution source and decentralized oracle for markets displayed on the website. The UMA <> Polymarket integration has been a major success thus far. More than 1000 markets have been successfully resolved by UMA, more than $65M in total open interest (OI) has been secured by the UMA oracle and the number of active participants in UMA’s oracle mechanism has grown significantly.
To support the UMA integration, Risk Labs granted 100,000 UMA over a 10 week period to Polymarket for a small-scale, experimental liquidity mining program. The liquidity mining program targeted subsidies for two core activities: liquidity provisioning and fee rebates. During the pilot program, the reward rule set has been iterated on multiple times to improve its overall function and exclude any efforts to exploit it. The results have been promising. Organic liquidity, in the smart contract AMMs displayed on Polymarket, is being provided at the highest levels ever and trading activity has increased. March, 2022 was the best volume month for the AMM contracts displayed on Polymarket in a year.
From Polymarket’s perspective, between the liquidity program and the resolution integration, UMA has become an important piece of the ecosystem and platform, providing decentralized resolution and critical incentive experimentation. For UMA, we believe Polymarket represents a sizable integration with significant demand that adds economic value to the UMA ecosystem and has grown the community. This is represented by Polymarket’s placement as the first integration listed on the UMA website. Overall, the integration and liquidity mining seems quite symbiotic. As such, and based on the value adds outlined below, Polymarket is requesting a 30 week expansion of its rewards program totaling 495,000 UMA funded by the UMA DAO. This figure represents ~1.3% of the community treasury.
- Polymarket significantly increasing the total economic value and activity within the UMA oracle network
- Polymarket battle testing UMA oracle hardness
- Polymarket growing the UMA community
- Polymarket serving as a signal that UMA works at scale for other projects
- Polymarket’s UMA-secured OI can be supercharged with extended reward experimentation
- Contributing valuable protocol feedback
Polymarket’s UMA integration has significantly increased the total economic activity within the UMA oracle ecosystem including value inflow. Specifically, the integration requires ~15 daily price requests each with a reward that is currently set at $50. This extrapolates to ~$300,000 per year in new incentives for reporters. As Polymarket continues to grow, the economic value contributed by the Polymarket integration to UMA will also increase. During the proposed 30 week extension period, we expect similar or increased frequency of market creation/resolution.
- 37,510 USDC total fees have been paid to UMA-reporters as rewards since the 2nd week of January, 2022
- 333 UMA-resolved markets were created between March 1st and 22nd. This is an average of 333/22 ~= 15 markets a day.
- Markets are currently parameterized with a reward of 50 USDC, this parameterization is expected to stay static over the 30 week extension period
- Extrapolating to a year 1550365 = 273,750 USDC per year for price proposers
- Extrapolating over the proposed 30 week extension period, this is $157,500 paid to UMA reporters
While UMA provides an elegant theoretic solution to the oracle problem, there are practical considerations that must be made in order to ensure oracle correctness/hardness. Particularly, there must be an always-online community of reporters and disputers. The more mature this network of agents are, the quicker and more confidently markets can be resolved. In early stages of adoption, UMA’s optimistic oracle is at its most vulnerable position. Polymarket’s early and sizable integration has helped develop this network of reporters and disputers. We estimate that the integration has resulted in dozens of new active reporters/disputers. As the economic scope of Polymarket’s integration, particularly as open interest backed by UMA’s oracle continues to grow, the maturity and thus security of the oracle will also increase as more incentives will be available to reporters and disputers. In this sense, by being the first, Polymarket is subsidizing the oracle hardening process. Concretely, this allows for more aggressive and competitive optimistic oracle parameterization which allows quicker and less expensive resolutions. This dynamic is a sort of fly wheel that should be incentivized around a large integration. We expect the 30 week extension to further advance the practical security of the UMA oracle with unique, hard-to-contrive free market exploitation tests.
A specific example of Polymarket effectively catalyzing a “stress test” occurred on Wednesday, March 16th, 2022 when a participant in the UMA Optimistic Oracle’s dispute mechanism attempted to push an invalid resolution through the optimistic oracle. The motive to do this came from the same address 0x785f1800d456888cfeafe99154a113066ab45078, which spent 1940 USDC acquiring “Bryant” outcome tokens of “Who will win Wright State vs. Bryant” market on-chain, after it was known Wright State won. The user both proposed the wrong price and disputed it himself once another user tried to dispute. This event resulted in:
- a dispute that escalated to the UMA DVM, ultimately resolving correctly,
- a loss of $4690 for the malicious actor
- address: 0x00000000de7d6d60dd363b87a76b188154025660
- -1940 USDC from the market to acquire the incorrect shares -1500 USDC from the proposal fee, -1250 from the loser bond
- 2125 USDC for the UMA DAO
Through this integration, UMA has gained access to the mindshare of thousands of monthly active traders (MAUs) that are part of the passionate, technical and engaged Polymarket community. Over the 30 week extension period and based on Polymarket’s user growth, we expect UMA to be distributed to at least 10,000 new addresses.
Polymarket is, by far, UMA’s largest and most significant integration to date. Polymarket markets have had more than $65M in total OI backed by UMA in under 3 months. The magnitude and success of this integration serves as a signal to other projects that UMA can work and can work at scale. Poymarket advertises UMA as the resolution source on every market page on Polymarket.com. Additionally, Polymarket primarily integrates with UMA on Polygon which also signals strong cross network support. Polymarket has served as a valuable signal before, once representing >97% of all value locked on Polygon and being the first major dapp to use the sidechain network.
The experimental, small-scale UMA <> Polymarket liquidity mining program has also been a major success. Organic liquidity across markets is being provided at the highest levels ever; this has in turn led to increased trading activity and average trade size since the start of the program (February 17th). Simply put, Polymarket’s users love it and it works. At the same time, Polymarket as a platform is evolving and will soon introduce significant market structure improvements. Polymarket expects the OI of the platform to benefit from the upcoming improvements but also believes that they will need a kickstart to be successful. As such, it is in the interest of both Polymarket and UMA to continue the UMA incentive program to allow further incentive experimentation.
A first-mover integration on the scale of Polymarket offers UMA valuable developer insights. The development team behind Polymarket has worked closely with the UMA team offering feedback, pieces of which have turned into product and protocol improvements. Polymarket continues to make suggestions and help improve UMA. All of the integration is open source and available for other developers to reference.
The deliverable of this proposal is prolonged incentivization of activity on UMA-resolved Polymarket markets with specific concentration on liquidity incentivization and LP fee rebates for traders. We propose distributing 495,000 UMA tokens over 30 weeks according to the following distribution schedule. This is a first draft of the proposed schedule and for maximum benefit and impact should be expected to evolve during the incentive period similar to how it has during the current program.
Initially the rewards ruleset will stay static, building off the current 10,000 UMA per week emission schedule. The current distribution ruleset is outlined below and is designed to incentivize liquidity provision and subsidize liquidity fees paid by traders.
Liquidity rewards for an LP over an epoch will be calculated as the sum of the following across all qualifying markets:
This essentially says LPs will earn a pro rata distribution of the reward available each block for a market based on their relative liquidity share.
Fee rebates for a trader over an epoch will be calculated as follows.
In effect, fee rewards are distributed pro rata based on a trader’s share of total fees paid over an epoch. The right to disqualify wash trading from the reward distribution is reserved and has been exercised effectively already, setting a precedent that deters others from doing the same.
Over the 30 week period, it is expected that the above ruleset will be further developed and tuned in order to accommodate evolving market structure and to increase the program’s efficiency. Generally, the rewards will be used to create a healthy, well-balanced, two-sided marketplace which in turn will result in additional value secured by UMA.
Distribution currently happens via a fork of SushiSwap’s merkle distributor (itself a fork of Uniswap’s). Every week, rewards are calculated according to the defined rule set and a merkle root representing the epoch’s rewards is stored in the contract. User’s submit proofs to this contract to claim their rewards. The total distribution might total a little more or less than the expected distribution each week due to the complexity of parameterization (can’t anticipate how long all markets will last). Any remaining UMA will be distributed in additional epochs at the discretion of the multisig wallet signatories.
495,000 UMA delivered to a multi-signatory Polygon wallet of which the composition will be decided between the UMA DAO and Polymarket. The wallet address will be made public once it is deployed.
The following multi-signatory wallet on Polygon is the proposed destination of the granted UMA:
The wallet is a 2 of 3 gnosis safe multisig. Two signers are Polymarket representatives and the third is Risk Labs’ multisig. Risk Labs’s position as a signer in the multisig does not represent an endorsement of the proposal; they are a neutral party.
The multisig address added in the 4/29/22 update has been updated according to a suggestion from @pemulis1 to instead include an Ethereum mainnet multisig. The new address has the same policies and signers as the original Polygon wallet.
Polymarket is a leading decentralized finance (DeFi) project, with a global, technical team. It is the largest decentralized prediction markets platform in the world by volume.