test
1
11
Ṁ400Ṁ507
resolved May 22
Resolved
YES1D
1W
1M
ALL
Get Ṁ200 play money
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Here's what happened in this example as far as I understand: start with a liquidity pool of 100 YES / 100 NO. A bettor buys m400 YES and receives 463 YES shares, leaving the liquidity pool at 37 YES. A liquidity provider injects m400 liquidity, adding 400 YES and 400 NO shares to the pool - now the liquidity pool has 437 YES.
If the market resolves YES at this point, the 437 YES in the liquidity pool is returned to the providers, with 20% to the provider of the initial m100 liquidity and 80% to the provider of the m400 liquidity. This is very different from paying out proportional to how many YES shares they currently own in the pool - 37 to the initial liquidity provider and 400 to the second liquidity provider.
The balance changes were:
-400 bet
-400 liquidity injection
+463 bet payout
+7 author commission
+350 liquidity return (can't directly observe this component but this is what it must be by subtraction)
Why do I only get 350 back, not 400? Looking at the code (especially around getLiquidityPoolPayouts), I think it's because the liquidity pool payouts are calculated by taking the total payout of the end liquidity pool shares, and then splitting that among the liquidity providers proportional to their liquidity contribution. I.e. the final liquidity pool had ~437 YES shares (400 added by me at the end and 37 left of the initial 100 liquidity). The 437 payout is then weighted with 100/500 back to the platform and 400/500 back to me.
I'm curious about the motivation to weight the liquidity payout by the amount contributed, vs keeping track of which shares each liquidity provider owns and paying those out? Both could make sense but I found this surprising. The current calculation would appear to disincentive providing liquidity when the probability has changed a lot from the previous liquidity injections - because you are forced to share equally in the losses that the previous liquidity pool already incurred.