PIP Number: PIP15
Title: Change the Market Cycle from 1 hour to 4 hours
Increase market cycle from 1 hour to 4 hour market to provide enough opportunity for market creators to promote and generate liquidity in their market
The current setup for PlotX prediction markets is to create hourly, daily and weekly markets for predictions on price movement of BTC/USDT and ETH/USDT.
However the hourly markets are unable to attract sufficient liquidity. This is because:
- Market creation can take upto 10-15 mins depending upon the market creators transaction mining. This leaves about 40-45 mins of prediction window.
- Further, during the later part of the 40-45 mins window, it is observed that due to delays in Ethereum transaction mining, users who take a position during the last 5-10 mins suffer from a lost prediction because their transaction couldn’t mine on time.
- This leaves about 30-40 mins only for liquidity to build up on the hourly markets.
This proposal describes the need for providing 4 hour markets such that the window for participation is sufficient for liquidity to build up. Longer markets also provide the opportunity for market creators to attract additional liquidity from their network. This goes very well with the following 2 other PIPs that are in execution:
- Gas optimization proposal that is focused on reducing gas usage in the protocol as well allowing users to participate in the market from the reward pool holdings
- Increased market creator incentives aligned to not just appropriately compensating the user for the market creation costs but encouraging liquidity promotion by sharing it from the reward pool
One of the key insights from the analysis of the liquidity in the markets is that the markets tend to do well if there’s enough time for liquidity to build up. And still enable reasonable settlement expectations from the community.
The average liquidity in the current markets based on the window that they are open are
Hourly Market - $31.00
Daily Market - $223.86
Weekly Market - $320.17
As can be seen from the data the liquidity in the market tends to increase upto a certain point beyond which the excitement of participating wanes significantly compared to interest in liquidity. This has also been validated during discussions with the community in various forums.
From the perspective of the DAO as well, the cost of keeping markets up and running, being compensated by the awards, can become prohibitively expensive if it is kept up on an hourly basis.
While the building up of liquidity is a short term challenge as the number of participants increase, it is important that we also optimize the current market creation model to align better to the market creator PIP.
The following is suggested with the above in mind.
Stop the creation of 1 hour markets.
For each market that is being enabled for creation, make it a 4 hour market running for settlement at 0, 4, 8,12, 16 & 20 hours in UTC.
For each of the markets that is created for 4 hours, define the cooling period to be 1 hour from the time of market settling.
The window for taking positions in the market will also be 4 hours just like how it was 1 hour in the 1 hour market.
For eg: For a market to be settled at 8 hours UTC, positions window will be opened from 0 hours to 4 hours UTC, Markets will go into settlement from 4 hours to 8 hours and go into cooling period from 8 hours to 9 hours before finalization.
Current changes in the market creator rewards models and with an aim of protecting the Ecosystem funds for appropriate long term sustainability, it is important to make the market windows longer.
A lot of discussion was had with various community members and we understand that while there have been preferences for various market times such as 3 hours and 6 hours, a 4 hour market seems to be acceptable.
This window also provides alignment, as indicated before, to the new focus on liquidity increase in the markets as more users will get the time to enter a position.
This change protects the Ecosystem funds, enables creators to really benefit from rewards of the liquidity pool that they are able to generate and fundamentally enables a better user experience.