Will there be a profit incentive for liquidity providers / market makers by end of June?
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Ṁ1KṀ102
resolved Jul 2
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I think this is highly beneficial because it will cause markets to have much more liquidity than they do now, which is good for traders and prediction accuracy. (Liquidity withdrawal is another key piece, which has just been implemented: https://manifold.markets/jack/will-it-be-possible-to-withdraw-liq)
Resolves YES if (in my judgement) it is reasonably feasible for someone to profit as a liquidity provider / market maker. For the purposes of this market, I'm thinking of that as someone who agrees in advance to take the other side of some set of trades (e.g. sell YES shares to a trader who wants to buy YES shares), without necessarily making a specific directional bet on the market.
Some thoughts on what I intend to include under "liquidity provider / market maker":
- This does not necessarily have to mean someone who provides liquidity to the current AMM system, but could also include market making via limit orders or other mechanisms.
- A liquidity provider can (and I think should) be allowed to specify criteria on what types of trades they will execute, e.g. a limited price range.
- For the purposes of this market, I will not consider someone who trades on spreads in the current Manifold system as a liquidity provider, because it's reactive instead of proactive - they aren't agreeing to the trades in advance, which means it doesn't work very well for providing liquidity.
- One person placing limit orders betting on YES, and another person on NO, also provides liquidity much like a single person placing limit orders in both directions. But I will not consider people solely making directional bets as market makers for the purposes of this question.
- I'll do my best to clarify if any questions come up.
I may resolve N/A if something unexpected makes this too ambiguous.
See https://manifoldmarkets.notion.site/Liquidity-solutions-compared-34c0ec79f55c41a9be573c4c88dff13e for some discussion of possible liquidity solutions.
Jun 9, 11:22pm: Clarification: the term "market maker" does not mean "person who creates a market", it means someone who offers both sides in a market, which provides liquidity, and profits off of the spread. See https://www.investopedia.com/terms/m/marketmaker.asp
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My creator earnings on this market are higher than they would be, I believe, if I hadn't added the additional $400 in liquidity right after starting the market. Any other idea on why the https://manifold.markets/BTE/will-this-market-be-traded-by-50-us
For a market that closed a couple days ago with more traders and similar volume generated 1/3 creator earnings. The only difference between the markets is the liquidity I added at the start. https://manifold.markets/BTE/will-vladimir-zelenskyy-meet-with-v
@BTE Yeah, that makes sense, as an author you can definitely increase your fee earnings by increasing liquidity - it incentivizes more trading which means more fees, and the reduced price slippage also means more fees because fees are multiplied by the post-bet probability.
But this market was mostly intended to be about whether liquidity providers in general can profit off of liquidity. Unfortunately I wasn't very clear about this, and in retrospect I should have asked two separate questions - one about the author and one about other liquidity providers.
@IsaacKing Eeeeeehhhhhhhhhhhh. Sort of. Not very much, though. Not enough to make it worthwhile on the vast majority of markets, especially since you lose most/all of your liquidity on markets whose probability eventually converges to the correct answer (aka most of them).
@MattP How much of an incentive are you expecting? If creating markets becomes positive expected value, we'll get flooded with spam. (Like we are now, but luckily those get resolved right away by their creators so it's not a big deal.) The incentives need to hit a sweet spot in the middle where people are rewarded for creating good markets that people want to bet in, and punished for creating bad markets that people don't want to bet in.
@IsaacKing I think the key is for creating *good* markets to be positive expected value.
@MattP Yeah, I tend to agree, although Manifold consistently surprises me with how fast they implement things! :)