Introducing Liquidity Bounties
Community-based market making programs
Blog » Liquidity mining: April recap
Carlo P. Las Marias
May 5, 2020 · 3 min read
Within the first two months (March 3 through April 30) that liquidity mining has gone live, we have achieved some promising results showing that a community of liquidity miners can rival the capabilities of professional market makers. We cannot thank our community enough for participating in liquidity mining, providing feedback, supporting us, and spreading the word! Below is a summary of some of the first two month's stats.
263 distinct individual miners have participated in liquidity mining; these are users that have signed up for the platform, ran bots, and creating eligible orders that have resulted in rewards. Each week has seen over 100 active, distinct miners.
We have seen positive growth in the number of liquidity mining bots since the launch of the platform.
We saw a good distribution of bots across markets. Some of the top miners were also participating in 3-8 markets in order to earn rewards across campaigns.
The average volume per bot has increased steadily, as users have been deploying increasing amounts of capital. Also, new miners with larger inventories have joined and participated.
We have seen positive growth in open order volumes as (1) a higher number of miners are participating, and (2) miners are starting to deploy larger amounts of assets.
This is a particularly important metric for us, since it represents the amount of assets that are being used for market making by our miners. It is analagous to the concept of total value locked (TVL); in order to market make, miners have to commit assets in order to create orders.
This amount can also be thought of as the order book depth created by miners. By creating orders and adding them to the order book, miners are reducing slippage and making it easier and more efficient for the tokens to trade.
As mentioned above, from March 3 to April 30, liquidity miner orders generated ~$20 million of filled order volume. Across all campaigns, liquidity miners are accounting for an increasingly higher percentage of Binance filled order volume. Liquidity miners currently account for nearly 30% of Binance filled order volume.
For some less liquid pairs (e.g. RLCETH) or recently listed pairs (XZCUSDT), miners have accounted for as much as 50-60%+ of filled order volume on Binance.
For liquidity mining, we are not compensating miners specifically for filled order volume. We intentionally designed liquidity mining this way because it is generally known that filled order volumes can be manipulated and faked, e.g. with wash trading, which is, unfortunately, a common-place practice in the crypto markets. Instead, by allocating rewards based on open orders, we have designed liquidity mining to incentivize true useful and beneficial liquidity, activity that makes it easier for the market to trade the asset. Our metrics are very similar to CoinMarketCap's liquidity metric.
However, while not the primary KPI, filled order volume has also benefitted, a by-product of the improved liquidity generated by liquidity mining.
Campaigns can be customized to influence miner behavior: (1) maximum spread range for eligible orders, and (2) spread weighting function to generate higher rewards for tighter spreads.
The graphs below show a snapshot of open orders at the onset of May for live campaigns. Orders are grouped by spread range buckets, showing the order book depth generated by miners.
For issuers, we provide additional in-depth analysis on the spread distributions and miner activity over time. This allows us and the issuers to set campaign parameters based on actual data on the observed behaviors of the miner population over time.
We'll soon launch a new liquidity minig campaign for one of our launch partners, Solana. Additionally, we are working with Celo for an exciting new program to support the launch of its new stablecoin.
In the first two months so far, our engineers focused on scaling the system and liquidity mining backend to make sure the system operates and run smoothly. We had more bots running right away almost immediately than we would have expected. In addition, users were running multiple bots across multiple markets, many with multiple orders for each bot.
Now that we are getting more comfortable that the platform is battle-tested, we will finally be able to start working on adding other exchanges for liquidity mining within the next few months. We are also in discussions with new projects for future liquidity mining campaigns and other potential exchange partners in order to bring Hummingbot's trading capabilities to new platforms. Lots of exciting things ahead, stay tuned 🚀!
For exchanges and projects who would like to learn more about liquidity mining, please contact us at email@example.com.
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