Liquidity at new markets

I would like to discuss strategies for incentivizing market makers to provide liquidity in new markets.
It appears to me that there is little sense in stimulating deeply liquid markets with rewards from Chaos Labs for market makers. Instead, redirecting these incentives towards long-tail markets could be more beneficial. Otherwise, these markets remain utterly non-competitive.

RNDR Market right now

Hey @chaoslabs , what are your thoughts?


On new markets you can set confidants from x3-x5, with a gradual decrease.
Also apply increased confidentiality for receiving points on all markets where the spread is more than 0.5% -1%
An example of PEPE, where the spread ranges from 1.5% and reaches 5%.


Seems like a great way to get more bang for the buck. Would you say that will attract more traders than incentivizing the big markets?

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I was talking about incentivizing market-makers. Traders will trade those hot coins if they have enough liquidity in my opinion
There is no point to incentivize takers at those markets


Good points! Would be a super interesting experiment for sure.

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Market makers like rebates and need ‘uninformed’ traders.

You can encourage uninformed traders by setting the trading fee to 0% - see my post on loss leader markets.

Rebates are easily achievable by a parameter change to make them permanent.

You can’t have both at the same time, of course, but I’d say that uninformed traders are more important to a market maker (having been one myself).

Cordialement, Tresgard


Interesting thought and I think you are right that the tail of markets need some kind of attention to get them more into the spotlight.

The question is how to do it. In the end not all assets “deserve” being incentivized for market-makers, but I could imagine that there are specific requirements to be met before an asset can be included in the program. Something like a matching principle where the asset itself can pay a part and dYdX can pay a part can already create some kind of resistance for projects to pass to be eligible for market-making incentives. That might avoid freewheelers in general.

Thanks for initiating this discussion @RealVovochka . We have spent a lot of time working on bootstrapping liquidity in a safe manner that focuses on growing dYdX trading activity over the long term.

For starters, it is important to point out that liquidity in long-tail markets already receives 50% more incentives than in major markets per unit of maker volume. This is specifically intended to bootstrap market liquidity to a minimum threshold and not to subsidize liquidity in markets that do not demand it over the long term.

Liquidity is also relative. BTC and ETH make up 68% of the crypto market cap and at least this proportion of perpetual future trading volumes in aggregate. These markets are where traders demand and take the largest positions. On the dYdX Chain, their combined open interest makes up 76% of the total. The liquidity is there because the traders are there.

The maker incentives are designed to allow market forces to dictate liquidity as much as possible. Market forces are generally more efficient in allocation than humans, which maximizes the return on incentives.

Excessive liquidity in markets that do not demand it can create risks to the protocol, which the incentive program needs to consider carefully. An abundance of liquidity can allow malicious actors to enter larger positions than they otherwise would be able to, more than activity on the market can handle.

While we welcome this feedback and this valuable discussion around new market liquidity, we do not favor excessive incentive intervention in market liquidity for the abovementioned reasons. Our preference is to take an unopinionated stance to exchange activity as much as possible and let the market decide. The problem of liquidity in new markets is better solved in other ways.


Thank you fro your reply I didnt know that long-tail market receive 50% more rewards.
In this case I agree with you and dont think any further stimulation is needed.

Just brainstorming maybe its worth creating some trading leagues for long tail markets for season 4

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Yes, I agree with this @RealVovochka. @chaoslabs It’s better to introduce daily and weekly competitions too if you have a way to manage this. They keep it interesting and you can alternate the daily competitions around specific markets only. Or a combination of a few new markets. This would be the ideal solution in my opinion. The leagues should be market specific also if the idea is to boost liquidity. Or they should not include BTC - ETH - SOL.

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Hearing Elixir integration is coming to dydx v4, any idea on how its solving long-tail market liquidity?

Bonjour @chaoslabs,

Thanks for the link, I wasn’t aware of the different incentives per market. I have to say, (as an algo trader looking to integrate with dydx) it still isn’t clear to me what incentives are just temporary launch incentives and which are a permanent feature of the markets.

This is an important distinction because the amount of time it takes to integrate with a new platform could easily swallow a large part of a temporary incentive program.

Information on the subject appears to be scattered in posts and blog articles making it quite difficult to get an up to date picture of all the incentives, their respective timelines etc.

Cordialement, Tresgard