Liquidity Mining: Marketplace Rewards for Crypto Market Makers
Summary
This paper proposes a marketplace model for paying crypto market makers. It contrasts the model with bilateral contracts, which it argues can create adverse selection, concentration risk, and difficult-to-verify commitments. In the proposed system, frequent order-book snapshots measure liquidity provision and allocate rewards in relation to the risk and quality of displayed liquidity. The design aims to let liquidity buyers and providers match through an open, pay-as-you-go marketplace.
The authors describe a simulation-based analysis of liquidity measures and discuss safeguards against wash trading, spoofing, and price manipulation, including data verification and auditability. The document therefore covers both incentive design and the surveillance needed to make those incentives credible. Its evidence is a model simulation rather than demonstrated market-wide results, and its claims depend on assumptions about snapshot measurement and participant behavior. It is a design proposal from 2019, so its conclusions may not capture later changes in crypto trading venues or market structure.
Key ideas
- Bilateral market-maker contracts can be costly to coordinate and hard to verify.
- Frequent order-book snapshots can support competitive rewards tied to displayed liquidity.
- A marketplace structure is intended to improve matching between liquidity buyers and providers.
- The proposal considers wash trading, spoofing, and price manipulation as incentive risks.
- The reported analysis is simulation-based and depends on the model’s assumptions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.