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MarketMaker Scoring

Methodology

  • The evaluation objective is to reward market makers who consistently provide tight and deep liquidity for users.
  • Market makers earn points according to liquidity contribution, which means there is a score cap per block.
  • The calculation is done off-chain based on on-chain blockchain data. The codebase is publicly available for any third-party verification.

Market Maker Eligibility

  • Market maker eligibility is decided by governance every month.
  • Only registered market makers can earn incentives based on their scores. Market makers who fail to meet the uptime requirements are also given their month incentives.
  • New applicants are requested to submit ApplyMarketMaker transaction to be included in the uptime evaluation. Those who meet the uptime requirement will be included in eligible market makers through governance.
  • The governance can exclude existing market makers who fail to meet the requirements for 2 consecutive months or 3 months within the last 5 months.

Market Maker Orders Requirement

  • Orders satisfying following conditions can be recognized and evaluated:
    • Use MMOrder from eligible MMAddress
    • Spreadequal or smaller than MaxSpread
    • Min(AskWidth,BidWidth) equal or larger than MinWidth
    • Min(AskDepth,BidDepth) equal or larger than MinDepth
  • Parameters (bottom of the document) are assigned differently for each pair depending on the market characteristics, and can be adjusted by governance

Uptime Requirement

  • Uptime requirement is measured in 2 stages:
    • LiveHour is added as market maker provide valid orders for an hour. Following 1 out of 2 conditions, it fails:
      • No valid orders longer than MaxDowntime in a row
      • No valid orders longer than MaxTotalDowntime total in an hour
    • LiveDay is added as LiveHour is equal or larger than MinHours in a day
  • Those who earnLiveDay equal or larger than MinDays satisfy the uptime requirement.
  • Parameters (bottom of the document) are decided and adjusted by governance.

Formula

  • Following formula is used to compute how much incentives should be rewarded to each market maker per month. The amount of CRE earned is determined by the relative share of each market maker’s score.
  1. 1.
    First step (within a block)
    • Calculate 2-sided liquidity point and take minimum value (take integer part)
    • ​
      P=min[AskQ1AskD12+AskQ2AskD22+...,BidQ1BidD12+BidQ2BidD22+...]P = min \lbrack{ {AskQ1}\over{AskD1^2} }+ { {AskQ2}\over{AskD2^2} } + ... , { {BidQ1}\over{BidD1^2} }+ { {BidQ2}\over{BidD2^2} } + ... \rbrack
      ​
  2. 2.
    Second step (within a block)
    • Obtain contribution score by taking proportion of the point within the block
      Pm∑iPiP_m \over \sum_i P_i
      ​
  3. 3.
    Third step (within a month)
    • Calculate Uptime by dividing LiveHour with total hours in a month
      U = Total LiveHour / Total hours in a month
  4. 4.
    Forth step (Final score)
    • Final score of market maker ‘m’ is as following :
      Sm=Um3∑Bt=1[Pmt∑iPit]S_m = {U_m} ^3 \sum ^{B}{t=1} \lbrack { P{mt} \over \sum_i P_{it} }\rbrack
      ​
      • ​
        UmU_m
         : % of Market maker m’s Uptime in the month
      • ​
        BB
         : Total number of blocks for the month
      • ​
        PmtP_{mt}
         : Contribution score of market maker ‘m’ at block ‘t’

Processing Order data

  • All variables are used as final values after the trade is made.
  • Even if the order of n-th tick is partially filled, the tick can still be a reference point(whether the highest bid or lowest ask) of measures when one of the following conditions is met. If not, the following tick becomes the reference point.
  • Min(AskQ(n),BidQ(n)) is equal or larger than MinOpenRatio of the original order
  • Min(AskQ(n),BidQ(n)) is equal or larger than MinOpenDepthRatio of MinDepth
Illustration of Bid/Ask
​

Measures

  • Breadth
    • MidPrice : Average price of lowest ask and highest bid
    • Spread : Price difference between lowest ask and highest bid divide by MidPrice
    • AskWidth : Price difference between maximum and minimum ask divided by MidPrice. BidWidth is same with bid prices
    • AskD(n) : Price difference between MidPrice and n-th ask price divided by MidPrice. BidD(n) is same with bid prices
  • Depth
    • AskQ(n),BidQ(n) : The amount of token remaining in n-th tick
    • AskDepth,BidDepth : Total amount of token remaining in ask or bid side

Example

  • Assume MaxSpread 0.012, MinWidth 0.002, MinDepth 100, MinOpenRatio 0.5, MinOpenDepthRatio 0.1
  • Measure
    • Block 1
    Text
    Market Maker A
    Market Maker B
    MidPrice
    9.945 = (9.96 + 9.93) / 2
    9.945 = (9.97 + 9.92) / 2
    Spread
    0.00301659.. = (9.96 - 9.93) / 9.945
    0.00502765.. = (9.97 - 9.92) / 9.945
    AskWidth
    0.00301659.. = (9.99-9.96) / 9.945
    0.00201106.. = (9.99 - 9.97) / 9.945
    BidWidth
    0.00301659.. = (9.93-9.90) / 9.945
    0.00201106.. = (9.92 - 9.90) / 9.945
    AskD(1)
    0.00150829.. = (9.96-9.945) / 9.945
    0.00251382.. = (9.97 - 9.945) / 9.945
    AskD(2)
    0.00251382.. = (9.97-9.945) / 9.945
    0.00351935.. = (9.98 - 9.945) / 9.945
    AskD(3)
    0.00351935.. = (9.98-9.945) / 9.945
    0.00452488.. = (9.99 - 9.945) / 9.945
    AskD(4)
    0.00452488.. = (9.99-9.945) / 9.945
    -
    BidD(1)
    0.00150829.. = (9.945-9.93) / 9.945
    0.00251382.. = (9.945 - 9.92) / 9.945
    BidD(2)
    0.00251382.. = (9.945-9.92) / 9.945
    0.00351935.. = (9.945 - 9.91) / 9.945
    BidD(3)
    0.00351935.. = (9.945-9.91) / 9.945
    0.00452488.. = (9.945 - 9.90) / 9.945
    BidD(4)
    0.00452488.. = (9.945-9.90) / 9.945
    -
    AskDepth
    200
    225
    BidDepth
    160
    240
    AskQ(1)
    50
    75
    AskQ(2)
    50
    75
    AskQ(3)
    50
    75
    AskQ(4)
    50
    -
    BidQ(1)
    40
    80
    BidQ(2)
    40
    80
    BidQ(3)
    40
    80
    BidQ(4)
    40
    -
    • Block 2
    Text
    Market Maker A
    Market Maker B
    MidPrice
    9.935 = (9.96 + 9.91) / 2
    9.945 = (9.97 + 9.92) / 2
    Spread
    0.00503271.. = (9.96 - 9.91) / 9.935
    0.00502765.. = (9.97 - 9.92) / 9.945
    AskWidth
    0.00301962.. = (9.99-9.96) / 9.935
    0.00201106.. = (9.99 - 9.97) / 9.945
    BidWidth
    0.00100654.. = (9.91-9.90) / 9.935
    0.00201106.. = (9.92 - 9.90) / 9.945
    AskD(1)
    0.00251635.. = (9.96-9.935) / 9.935
    0.00251382.. = (9.97 - 9.945) / 9.945
    AskD(2)
    0.00352289.. = (9.97-9.935) / 9.935
    0.00351935.. = (9.98 - 9.945) / 9.945
    AskD(3)
    0.00452944.. = (9.98-9.935) / 9.935
    0.00452488.. = (9.99 - 9.945) / 9.945
    AskD(4)
    0.00553598.. = (9.99-9.935) / 9.935
    -
    BidD(1)
    0.00050327.. = (9.935-9.93) / 9.935
    0.00251382.. = (9.945 - 9.92) / 9.945
    BidD(2)
    0.00150981.. = (9.935-9.92) / 9.935
    0.00351935.. = (9.945 - 9.91) / 9.945
    BidD(3)
    0.00251635.. = (9.935-9.91) / 9.935
    0.00452488.. = (9.945 - 9.90) / 9.945
    BidD(4)
    0.00352289.. = (9.935-9.90) / 9.935
    -
    AskDepth
    190
    225
    BidDepth
    80
    180
    AskQ(1)
    40
    75
    AskQ(2)
    50
    75
    AskQ(3)
    50
    75
    AskQ(4)
    50
    -
    BidQ(1)
    0
    20
    BidQ(2)
    5
    80
    BidQ(3)
    40
    80
    BidQ(4)
    40
    -
    • In case of market maker A, the highest bid has moved from 9.93 to 9.91 at block 2. BidQ(2) does not meet the either conditions of MinOpenRatio of original order amount (5/40 < 0.5) nor MinOpenDepthRatio ( 100(MinDepth) * 0.1 = 10 ).
    • For market maker B’s case, reference point haven’t changed. BidQ(1) could not meet the MinOpenRatio (20/80 < 50)condition, but larger than MinOpenDepthRatio.
  • Liquidity Point
    • Block 1
      • Both market maker A and B meet the condition
        • Spread(A), Spread(B) < MaxSpread (0.012)
        • AskWidth(A), BidWidth(A), AskWidth(B), BidWidth(B) > MinWidth (0.002)
        • AskDepth(A), BidDepth(A), AskDepth(B), BidDepth(B) > MinDepth (100)
      • Each point on Block 1 is as follows,
        PA1=min[500.0015..2+500.0025..2+500.0035..2+500.0045..2,400.0015..2+400.0025..2+400.0035..2+400.0035..2]P_{A1} = min \lbrack{ {50}\over{0.0015..^2} }+ {{50}\over{0.0025..^2} } + {{50}\over{0.0035..^2} }+ {{50}\over{0.0045..^2} }, {{40}\over{0.0015..^2} }+ {{40}\over{0.0025..^2} } + {{40}\over{0.0035..^2}}+ {{40}\over{0.0035..^2} }\rbrack
        ​
        ​
        PA1=min[36369600,29095680]=29,095,680P_{A1} = min \lbrack36369600, 29095680\rbrack = 29,095,680
        PB1=min[750.0025..2+750.0035..2+750.0045..2,800.0025..2+800.0035..2+800.0045..2]P_{B1} = min \lbrack{ {75}\over{0.0025..^2} }+ {{75}\over{0.0035..^2} } + {{75}\over{0.0045..^2} }, {{80}\over{0.0025..^2} }+ {{80}\over{0.0035..^2} } + {{80}\over{0.0045..^2}}\rbrack
        PB1=min[21586725,23025840]=21,586,725P_{B1} = min \lbrack 21586725, 23025840\rbrack = 21,586,725
        ​
    • Block 2
      • Only Market maker B meet the condition,
        • Spread(A), Spread(B) < MaxSpread (0.012)
        • AskWidth(A), AskWidth(B), BidWidth(B) > MinWidth (0.002)
        • BidWidth(A) < MinWidth
        • AskDepth(A), AskDepth(B), BidDepth(B) > MinDepth (100)
        • BidDepth(A) < MinDepth
        ​
        PA2=min[14414430,0]=0P_{A2} = min \lbrack 14414430,0\rbrack = 0
        PB2=min[750.0025..2+750.0035..2+750.0045..2,200.0025..2+800.0035..2+800.0045..2]P_{B2} = min \lbrack{ {75}\over{0.0025..^2} }+ {{75}\over{0.0035..^2} } + {{75}\over{0.0045..^2} }, {{20}\over{0.0025..^2} }+ {{80}\over{0.0035..^2} } + {{80}\over{0.0045..^2}}\rbrack
        PB2=min[21586725,13531150]=13,531,150P_{B2} = min \lbrack 21586725, 13531150\rbrack = 13,531,150
        ​
  • Contribution Score
    • Block 1
      CA1=2909568029095680+21586725=0.574078..C_{A1} = \frac{29095680}{29095680+21586725} = 0.574078..
      CB1=2158672529095680+21586725=0.425921..C_{B1} = \frac{21586725}{29095680+21586725} = 0.425921..
      ​
    • Block 2
      CA2=0C_{A2} = 0
      CB2=1C_{B2} = 1
      ​
  • Final Score
    • Sum up all of the contribution scores for the month and product cube of uptime
    • Market maker A : (Assuming uptime 70%)
      SA=(0.7)3∗(0.5740..+0+...)S_A = (0.7)^3 *(0.5740.. + 0 +...)
      ​
    • Market maker B : (Assuming uptime 90%) :
      SB=(0.9)3∗(0.4259..+1+...)S_B = (0.9)^3 *( 0.4259..+1+...)
      ​

Parameters

Scoring module contains following parameters :

Common Parameters

Key
Definition
Example
MinOpenRatio
Minimum ratio to maintain the tick order
0.5
MinOpenDepthRatio
Minimum ratio of open amount to MinDepth
0.1
MaxDowntime
Maximum allowable consecutive blocks of outage
20 (blocks)
MaxTotalDowntime
Maximum allowable sum of blocks in an hour
100 (blocks)
MinHours
Minimum value of LiveHour to achieve LiveDay
16
MinDays
Minimum value of LiveDay to maintain MM eligibility
22

Parameters for each pair

Key
Definition
Example
PairId
Pair id of liquidity module
20
UpdateTime
Time the pair variables start to be applied to the scoring system
2022-12-01T00:00:00Z
IncentiveWeight
Incentive weights for each pair
0.1
MaxSpread
Maximum allowable spread between bid and ask
0.006 (ETH-USDC pair), 0.012 (ATOM-USDC pair)
MinWidth
Minimum allowable price difference of high and low on both side of orders
0.001 (ETH-USDC pair), 0.002 (ATOM-USDC pair)
MinDepth
Minimum allowable order depth on each side
600000000000000000 (ETH-USDC pair), 100000000 (ATOM-USDC pair)
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Last modified 1mo ago