PIP: Increasing the Market Creation Rewards

Preamble
Title: Increasing the Market Creation Rewards

Simple Summary
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

Abstract
This proposal describes an incentive realignment strategy for rewarding market creators with PLOTs + Share of Market Reward Pool based on the following parameters:

  1. Gas amount used in market creation transaction (average of 650K)
  2. Gas price paid by the market creator (for eg 30 Gwei)
  3. Ethereum gas price for fast transaction mining
  4. Price of PLOT in ETH
  5. Amount staked for Play Mining (determines the % share of reward pool from 1% to 10%)

Motivation
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.

Specification
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
  1. Incentive in PLOT for market creation = Gas Amount Used * Gas Price / Price of PLOT in ETH
  2. 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
  3. PLOT price in ETH as per the PlotX smart contracts that are maintained with cumulative hourly price update
  4. 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.
  5. 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
  1. Market Creator can claim an incremental %age (Between 1%-10%) of the reward pool based on the number of PLOT tokens staked by them.
  2. 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.
  3. 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.
  4. 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)%)
  5. 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)

Rationale
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:

  1. Change the current fixed amount from 50 to another constant say 500, via governance.
  2. 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
Copyright and related rights waived via CC0.

8 Likes

I think this proposal is a great idea. The market creator should be rewarded for opening a market rather than penalised. However, I’m not sure that it’s necessary for them to take upto 10% of the rewards pool. You’re essentially taking rewards from market participants and giving it to market creators who may not even be actively predicting. I would suggest at the very least lowering the starting/max percentage (maybe 0.5%-5% or even 0.25%-2.5%) or removing that incentive altogether and just covering the gas fee. Or would it be possible to make it that in order to gain a percentage of the rewards pool the market creator also has to make a prediction on the market that they create with a minimum amount of say 250 PLOT?

6 Likes

First of all I’d like to thank the team that they follow the problems and are working hard to solve them. This shows us their serious attitude.

Conserning the PlotX PIP: Increasing the Market Creation Rewards, it’s a nice beginning. And ofc that’s really better than just 50PLOTX. So I see here few issues for further discussion:

«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.»

What will you do if the price will be higher than 100 gwei? Who will than create PlotX markets?

«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.»

Well, I’m not sure people will be glad to wait that much in crypto market. Many of those who come to make predictions to the platform don’t want to become liquidity providers. They just want to have fun and make predictions. It’s too complicated for them firstly to read about liquidity pool, than to stake their ether for at least a month, than wait a month and than withdraw it from liquidity pool, paying extra fees. Not sure participants will be involved in it. Compensation mechanisms should be as easy as it is possible to understand them for a total newbie for 5 minutes. (IMHO).

«i. 1% until the staked amount is less or equal to 50,000 PLOTs»

it’s about 2500$ in current market prices. And it’s just 1%. Of the pool reward after 1 month. 1% in a month in crypto market… someone would rather buy a bitcoin and get more than 1%.

« In order to align the incentives for creation gas cost 2 approaches could have been taken:

A) Change the current fixed amount from 50 to another constant say 500, via governance.

B) Upgrade smart contract to dynamically handle the incentives based on the current market scenario»

I’m for the A but also want to offer you the 3rd option. May be you’d better just to create a script with automatic market creation mechanism? (in other words PlotX team will pay for the market creation itself in the beginning of every hour in order to prevent cases when the gwei is much higher that the fixed amount of plotX, proposed for gas compensation purposes.).

I would be happy to make my suggestions useful. So I’ve written all that not to criticize this really perspective initiative, but make it really cool. I like what you are doing and I want PlotX will grow and develop. :slight_smile:

2 Likes

A few things.

If the gas fee is over 100 GWEI there is still compensation from the rewards pool percentage that the market creator will receive depending on their staking level.

The staking isn’t the same as providing liquidity. You are simply locking your PLOT for 30 days, which is beneficial to PLOT holders and the PLOT ecosystem.

The percentage is of the rewards pool that has been created, it’s not a percentage of what you have staked. So over a 30 day period if you were creating markets each day then your potential returns are quite significant. Also, people already have other incentive to stake in the form of play mining, this is just an added bonus.

This incentive program doesn’t necessarily need to appeal to newbies. Only 25 markets can be created per day plus the weekly market, we don’t need everyone to be creating markets, we just want to reward those that do.

This program not only incentivizes creating markets but also holding and staking PLOT, which is positive for the price and makes the token more appealing. And then if you require the market creator to participate in the prediction markets they create then you have continually open markets with PLOT/ETH up for grabs.

The majority of people that use PlotX will simply be making predictions, not creating markets.

2 Likes

You’re absolutely right. I also think that 10% of the reward pool is overwhelming. It turns out that the user will pay more than 10% commission in any case - he lost or won. This is too much and it will be very difficult to earn with such a large rake.
I think that reasonable numbers might sound like this: 0.5 - 2.5% of the reward pool. This is very generous and you can even reduce these numbers.

3 Likes

I think you are right.

I would keep the method for covering the gas fee the same as the original proposal but I would change the other incentives slightly.

I would go with:

The market creator gets 0.5%-2.5% of the rewards pool.
25,000 PLOT minimum stake requirement for 0.5%, with each extra 25,000 staked adding another 0.5%. So to get the max 2.5% you’d have to stake 125,000 PLOT.

I would add the requirement to participate in the market that you create in order to claim the bonus rewards from the rewards pool.
Minimum 350 PLOT for hourly market
Minimum 700 PLOT for daily market
Minimum 1000 PLOT for weekly market

This encourages staking/holding PLOT long-term, market creation and market participation. All of which will benefit the PlotX ecosystem and PLOT holders.

3 Likes

I guess increasing the market creation rewards is good. It encourages more predictors to create market rather than “participate” only. However that additional 10% of the reward pool sounds a little bit much ? Just my opinion

3 Likes

I am satisfied with additional rewards of 50 plot however why make it 10% dont you think its too much for you ?Though its a good idea. More people will come after it.

Yes the creation reward should be matrixed with staked amount and prediction amount to make it balance risk/reward.

As you stake more, the creation reward increases

And

As you predict with greater amount, creation reward increases

Creation reward benefit should tilt harder on second variable (ie. Creation reward is reasonably low even if you stake a large sum but only predict with a small amount)

1 Like

One of the fundamental reasons an additional incentive is being focused on for the market creator is to enable liquidity mobilization for the market. I agree with the minimum market size also being included to ensure that there is base value created by the creator to become worthy of additional rewards.

2 Likes

I agree with this idea in terms of tierd rewards based on both staking amount AND initial market participation amount, as long as it’s not overly complicated. Could just simply be a set minimum participation amount that increases with increased stake.

The base level stake would be 25,000 and would go up in increments of 25,000 PLOT to a maximum of 125,000 PLOT.
The base level for contribution to the created prediction market would be 300 PLOT and would go up in increments of 150 PLOT to maximum of 900 PLOT.

Example:

25,000 PLOT stake, 300 PLOT on created prediction market : 0.5% of rewards pool

50,000 PLOT stake, 450 PLOT on created prediction market : 1% of rewards pool

Upto maximum of 2.5% with 125,000 PLOT stake and 900 PLOT on created prediction market

And then make it so that the lower of the two requirements will decide what percentage of the rewards pool you receive.

So if you have 125,000 PLOT staked but you only contribute 450 PLOT to the created prediction market then you’ll only receive 1% of the rewards pool.

The numbers don’t have to be exactly as I’ve specified but I think that kind of principal/mechanism would work well.

Hey everyone, good to see a healthy participation on this PIP. After reading all the comments, this is what I propose to start with. We can eventually increase / decrease the rewards - there is no way to assess what works, unless we try.

Revised Specification

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 upto 5% of the reward pool in the created market

  • Emulating Gasless Market Creation

    1. Incentive in PLOT for market creation = Gas Amount Used * Gas Price / Price of PLOT in ETH

    2. 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

    3. PLOT price in ETH as per the PlotX smart contracts that are maintained with cumulative hourly price update

    4. 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.

    5. 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

    1. Market Creator can claim an incremental %age (Between 0.5%-5%) of the reward pool based on the number of PLOT tokens staked by them.

    2. 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.

    3. Based on the amount being staked for play mining, the share of the reward pool is computed, beginning at 0.5% and capped at 5% of the reward pool.

    4. Each Market should have a minimum liquidity equivalent to 1 ETH either in PLOT or ETH combined for this incentive to be activated

    5. The % is computed as follows:
      i. 0.5% until the staked amount being less or equal to 25,000 PLOTs
      ii. Additional .5% increase with every additional 25,000 PLOTs being staked
      iii. A maximum of 5% for the staked amount being equal to or more than 250,000 PLOTs
      iv. Formula for % share of the reward pool:
      min(5%, 0.5% + absolute(PLOTs staked in Play Mining / 25,000) * 0.5%)

    6. Incentivizing the market creator with a share of the reward pool aligns their interests towards grassroot 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 upto 5% 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 1.b, 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)

Next Steps
This PIP requires smart contract upgrade. I will be creating an on-chain voting proposal and will update the link to the vote by editing this comment.

[Update]
Link to on-chain vote: https://govern.plotx.io/proposals/10, open for 3 days.

3 Likes