@pdlozqng Thanks for these constructive questions. A condition of the RL initial 100k token grant was that any UMA earned by Polymarket-associated LPs would be circulated back into the program. Polymarket has obeyed this rule. Additionally, Polymarket provides liquidity as a loss leader and avoids significant liquidity provision in markets that are selected for rewards. I want to make it very clear, because it hasn’t been explicitly noted before, that Polymarket is not profiting or generating revenue from the liquidity mining program. Polymarket’s intent with the liquidity mining program is purely to encourage liquidity provision and create a more robust on-chain marketplace. If this proposal passes, Polymarket will operate under the same understood ruleset whereby it will avoid earning/claiming UMA rewards directly and if it does, those will be recycled back into the program.
- How many total users participated in liquidity provision during the LM trial? How many of these were new LPs?
1434 users/addresses have added liquidity during the LM trial, 1234 of them being new LPs
- How is “organic liquidity” defined? How much organic liquidity was there during LM, and how much was there pre-LM?
Organic liquidity is a blanket term for non-Polymarket liquidity provided for the purpose of getting fees or rewards. Organic liquidity has increased 243% since the start of the program. Based on the above statement that Polymarket avoids providing liquidity on incentivized markets, one can essentially assume all the liquidity in incentivized markets is “organic”
What avg % return did Polymarket liquidity miners get from the initial program?
This is a very hard (impossible) number to quantify as liquidity provisioning on Polymarket is a quite active affair. Given the binary nature of event markets, an LP who remains in the pool from creating to resolution will suffer ~100% impermanent loss. This means that returns from providing liquidity are highly dependent on individual LP strategies and market profiles. The ruleset, and tools for providing liquidity are open source and the markets are on-chain, so I think it is safe to assume providing liquidity is an increasingly competitive affair; anecdotal evidence from the community would corroborate.
With these stats in mind, why was 495,000 chosen as the number of tokens to request?
This number was chosen as it is a reasonable expansion of the per week rate of the initial program and it is expected to give enough powder to catalyze market formation around upcoming structural improvements.
What impact on Polymarket’s platform do you project that this will have (especially in regards to TVL since this is mostly what matters to UMA), and what indication is there from the original LM trial that this is true?
OI has increased 46% during the liquidity mining program (from start to peak). An interesting dynamic here, is that OI/Volume ratio is actually decreasing which likely means 1) the supply side is becoming more efficient and 2) there are compelling alternative USDC yield opportunities in the space. Polymarket has plans to iterate on the ruleset in the 30 week period to add some incentivization around OI, as there is an obvious opportunity cost to locked capital.
Is this to compensate for the fact that Polymarket will not continue matching UMA rewards, or do you see this amount of tokens accelerating growth for a particular reason?
Both. Polymarket will continue to make significant contributions to liquidity operation costs (particularly initial liquidity endowment), but the additional USDC subsidies for the program are eventually expected to end. The acceleration of rewards is intended to accommodate this tapering but more importantly, it is meant to coincide with structural improvements that are expected for Polymarket. These structural improvements, which have been in development for awhile, will create a more dynamic and sustainable supply side, but are also expected to require some kickstarting; hence the acceleration.
$3MM over 30 weeks results in an APR of about 86% assuming Polymarket TVL of $6MM, which is higher than it’s been throughout the LM pilot with rewards being paid from UMA and Polymarket together.
As mentioned above, the APR calculation for LPs is complex and market/agent dependent so this is not an accurate figure.
What is Polymarket’s plan for liquidity incentivization beyond the funds asked for here? Should UMA expect that this type of support will continue to be asked for, or is this simply a stop gap until Polymarket implements a different solution?
You are correct in your assumption of this effectively being a bridge to a more sustainable future. The defined schedule anticipates sustainability, hence the initial increase to a reward peek at the 20 week mark, then a decrease to zero. As you can imagine, Polymarket, more than anyone, understands the importance of a sustainable marketplace. The supply side of Polymarket is currently flawed and requires incentivization to work across many markets. This is a result of poor market structure, specifically the application of constant product automated market makers to binary event contracts. Polymarket has always known this shortcoming, but the existing market structure was simple and quick to develop. It has been Polymarket’s plan to improve the market structure and there is an ongoing effort on that front, the results of which will be public during this 30 week period. Polymarket, as you can understand, is unready to share all of the details, but it will be a significant improvement, and one that should allow for a sustainable liquidity fly wheel.
I spent much of the weekend thinking about this proposal and the community’s response and want to be quite candid in my thinking here. I recognize my obvious bias, but I think it is well understood by everyone in this thread that a relationship between Polymarket and UMA is beneficial to both sides. In a similar vein, success for Polymarket equals success for UMA. Polymarket is obviously very incentivized to optimize the rewards program and motivate activities that make Polymarket more successful. Polymarket took a large risk integrating UMA as a resolution source. The integration took a significant investment of resources by Polymarket. It is undeniably the most active and prominent integration for UMA to date. I understand the skepticism of some users in this forum as this is the largest grant vote to date (as far as I’m aware), but there are examples of grants (here is a great comp) by platforms/projects in the ecosystem that were larger, provided with much more enthusiasm and made at much earlier stages even before there was a clear symbiotic relationship. If Polymarket had come to the UMA DAO 5 months ago and proposed a grant of this size or larger with the KPI being the integration, I think it would have been a no-brainer. While we can get bogged down in specifics, I think the community should consider that the largest KPI of the Polymarket<>UMA relationship, the integration itself, has already been accomplished. Sure the liquidity mining program can be optimized (and it’s in Polymarket’s shared interest to do), but I don’t think relatively small metrics should get in the way of this proposal passing. I think an extension, then another proposal wastes time and energy that could be invested in the aligned activity of improving the program. Polymarket has shown that it actively iterates the program and does so through user input and will consider UMA’s input throughout the 30 week period. Polymarket has made a bet on UMA and UMA should make a bet on Polymarket.