Competitions and incentives are a good way to attract liquidity. The following are examples of such competitions:
- Monthly/Bi-weekly/Weekly Trading Competitions
- Market Making Competitions
- MM Bot Building Competitions
Considering that the main means of participating in Friktions value propositions is through the Lightning OG NFTs, incentives can be channeled through this asset to create a cascading value creation effect. With plans to use the NFTs as an accounting means for airdrops and proposals being made to have the NFTs earn yield, these NFTs can be used to incentivized liquidity on to the platform. Therefore, they can be use as the main incentive tool for competition # 1. For competition # 2 & 3, a hybrid model (NFTs and USDC) can be used since these involve more capital utilization and risks. The Funding Rate being earned on positions should also be used as an incentive.
I like this idea of competitions, it definitely has an incentive for the team to evolve it into a longer term solution as well
Bullish this concept. Though I think most protocols fail at competition design having sufficient volume retention post-competition. You bring up an interesting point as this is probably because most trading competitions are taker-oriented (ie show large volume to encourage future makers to participate). Any good examples of designs that successfully avoided churn?
I like the idea of focussing around MMing or bot building competitions. It’s a large attraction for future Solana developers (esp those coming from TradFi) esp given how easily you can plug into generic MM infra on - see Entropy MM bot here.
Here’s a proposal:
- Host an Entropy MM bot building competition to encourage teams to build out competitive strategies that can generate returns as well as volume (can use have taker bots/TWAP infra being built out). Timeline TBD - can start as soon as next week?
- Incentives can come in the form of Lightning OGs, Entropy token (this process will need to be built out and agreed upon in a separate post by community members), and USDC - with an option to be able to deploy more
- The winning team(s) will have an opportunity to join as some of Friktion’s first Inductors (Volt Strategists, inspired by the Yearn strategist model). This role will be increasingly important for Friktion going forward as future Volts will eventually become optimization challenges which Friktion Inductors will build and be rewarded for.
Open to more ideas on incentives and how to better design this competition. Let’s aim to get it up and running in < a few weeks!
The MM competition and bots would counter the taker side of trading. I think to make the trading sustainable the incentives must also be sustainable.
I like the idea of winning strategies being vaulted. I think to further incentivize this we can use the NFTs as a way to make long term “royalty” type claims on these vaults further adding to value for the NFTs.
Love the idea.
How do you propose we measure who is market making better or worse? There is some engineering lift required here to calculate those metrics on-chain.
I figured the MM one would take a bit of work. I’m thinking two or three variables, volume placement and length of placement. Another one I’m thinking of is using rebates (probably can use % earned in a given time period) as the medium of measurement since these are calculated on the maker side.
If we are running a market-making bot competition, then the scoring metrics has to be as fair as possible so that people understand what to optimize for.
The above is what dydx uses to calculate the % of trading rewards given to market makers, which we can adapt to determine the scoring metrics. Off the top of my head, the scoring metrics should include uptime, depth, PnL (since this is a competition and we want the bots to make money), volume traded (will incentivize bots to close arbs).
Just to start the discussion, I would propose a simple formula.
U = 1 if uptime >90% during the epoch, else 0.5
Depth = ?? (need more thinking on how to quantify this)
PnL = $PnL made
VolumeTraded = $volume traded
score = UDepthPnL*VolumeTraded
I realise this is a very crude formula, but I don’t think we have to be too complicated about it.