Title: Increasing the Market Creation Rewards
Increasing the market creation rewards from 50 PLOTs to a dynamically calculated value in PLOTs that equals the gas cost incurred by Market Creator along with an opportunity to claim up to 10% of the reward pool in the created market
This proposal describes an incentive realignment strategy for rewarding market creators with PLOTs + Share of Market Reward Pool based on the following parameters:
- Gas amount used in market creation transaction (average of 650K)
- Gas price paid by the market creator (for eg 30 Gwei)
- Ethereum gas price for fast transaction mining
- Price of PLOT in ETH
- Amount staked for Play Mining (determines the % share of reward pool from 1% to 10%)
One key observation in the community is the disparity around the incentives being distributed to market creators vs cost of creating a market by paying gas fees in ETH. This was raised by a community member (0x74c2…5e6d5) via a governance proposal at https://govern.plotx.io/proposals/3
The current Market Creation incentive is set at 50 PLOTs for the market creator. While the incentive is fixed, the cost incurred by the market creator varies because of dynamic gas price and dynamic PLOT price. In the current market scenario, the value of 50 PLOTs < cost of creating markets leading to a hindrance in executing the market creation transaction.
Further, the role of market creators is limited to spending gas cost in lieu of an incentive in PLOT tokens. A telegram community member (@Deadleyd) proposed that the role of the market creator should be more than just spending gas cost for creating markets and that it should align with bringing more liquidity to the market.
In my opinion, this is a short term problem given the protocol is ~2 weeks old. With the PlotX Participation Mining program, Market Creators can take the advantage of creating the market, and predicting early on the lowest option pricing to get more positions, and hence a bigger chunk of the Participation Mining reward.
Given that a community member raised a proposal at https://govern.plotx.io/proposals/3, and given that others have also raised concerns, it is important that we discuss.
Here’s a proposal to bootstrap Market Creation with a dynamic incentive design.
For each market, and only once per market that has been successfully created, the market creators can claim a dynamically calculated value in PLOTs that equals the gas cost incurred by Market Creator along with an opportunity to claim up to 10% of the reward pool in the created market.
- Emulating Gasless Market Creation
- Incentive in PLOT for market creation = Gas Amount Used * Gas Price / Price of PLOT in ETH
- where, Gas Price is minimum of the following conditions:
i. Gas Price sent by market creator
ii. Fast Gas Price as per Chainlink Oracle with a deviation of 25%
iii. Maximum Gas price, proposed to be at 100 gwei
- PLOT price in ETH as per the PlotX smart contracts that are maintained with cumulative hourly price update
- The intention of this formula is to return 100% of the gas fee incurred by the Market Creator in the form of PLOTs, as long as the gas price is less than 100 gwei.
- Chainlink maintains an on-chain measure of fast gas required to mine transactions on Ethereum. Chainlink node operators update the gas price feed on-chain if there is a 25% deviation from the current gas price recorded on-chain. Hence, the 2nd factor = 1.25 * on chain fast gas price provided by Chainlink.
- Incentivizing in %age of Reward Pool
- Market Creator can claim an incremental %age (Between 1%-10%) of the reward pool based on the number of PLOT tokens staked by them.
- For Market Creator to claim a %age of the reward pool, they need to stake PLOT tokens for 30 days under Play Mining and then create the market.
- Based on the amount being staked for play mining, the share of the reward pool is computed, beginning at 1% and capped at 10% of the reward pool.
- The % is computed as follows:
i. 1% until the staked amount is less or equal to 50,000 PLOTs
ii. Additional 1% increase with every additional 50,000 PLOTs being staked
iii. A maximum of 10% for the staked amount being equal to or more than 500,000 PLOTs
iv. Formula for % share of the reward pool:
min(1%, absolute(PLOTs staked in Play Mining / 50,000)%)
- Incentivizing the market creator with a share of the reward pool aligns their interests towards grassroots activation for building liquidity in their markets. This eventually could create a healthy ecosystem.
Hence, the total incentive for market creation = potentially 100% of the gas fee incurred in equivalent PLOT (assuming gas price is <= 100 gwei) and an opportunity to claim up to 10% of the Reward Pool of the created market.
Here’s an illustration:
- Alex creates a market on PlotX by spending $25 in gas cost and subject to meeting all the conditions in point 2 of Emulating Gasless Market Creation, he receives back $25 worth of PLOT.
- Now assuming that Alex has 250,000 PLOT staked, he will own 5% of the reward pool.
- Let’s say, post settlement, if the reward pool is worth $10,000, then Alex will get $500 as an additional incentive.
- Total Incentive for Market Creation = $525. $25 equivalent in PLOT and $500 equivalent in PLOT + ETH (based on the reward pool split)
In the initial weeks of launch, it was observed that the gas costs being paid by market initiators were not being covered by the incentives in PLOT. It was also provided as feedback that the Market Creator should be able to provide more liquidity supporting activities and benefit from that effort. In order to align the incentives for creation gas cost 2 approaches could have been taken:
- Change the current fixed amount from 50 to another constant say 500, via governance.
- Upgrade smart contract to dynamically handle the incentives based on the current market scenario
Even though the implementation of the 1st approach would have been easier, it has the limitation of not being able to tune itself to the market dynamics.
The cost incurred by the market creator in PLOT depends on both the gas price being paid and the price of PLOT vs ETH. Since both of them are subject to change a constant number will not be able to justify the cost. Further, the role of the market creator is currently limited to spending gas cost for creating markets.
The second approach of upgrading smart contracts is a reasonable approach as per the details in the Specification section if the proposal was to pass the community vote.
It is important to note that the gas price being compensated for is subject to limits, to avoid draining of funds and unnecessary gas wars. It is possible that a user pays 1000 gas price while the fast gas price of 60 could have been sufficient. If the limits of Chainlink based data at 25% deviation is not in place, this could lead to gas wars and draining of funds.
It is also proposed to put a maximum limit on the gas price being compensated. This number is configurable and can be changed via governance at any point in time. At the moment, I propose to start at a limit of 100 Gwei.
With the Market Creator being able to claim a portion of the reward pool, the protocol will provide a reinforcement loop and skin in the game at the same time.
Copyright and related rights waived via CC0.