Proposal to Incentivize Initiating Markets

When looking at the orderbooks and the number of markets we currently offer, a number of thoughts run through my mind.

  1. The strike prices that are offered are usually spun up by team members trying to find market fit and gauge needs of traders to attract liquidity.

  2. Not enough community members are engaged in the decision making process of listing different assets or strike prices

  3. We are a community based option platform and team members should not be a bottleneck with what strikes and assets are offered to trade options on, even if there might not be liquid markets for them.

I started wondering why don’t we incentivize users/teams/protocols to spin up markets? This could work well with option liquidity mining programs like Jungle Finance just completed. The process is fairly simple:

-User spins up (initialize) markets

-Trades incur a small fee lets say ~5% or no more then $10 for this example. Actual numbers will need to be quantifiable and reasonable.

-Fees gets divided and allocated to the PsyDAO and to the user who spun up that market when trades happen on that market. Let’s say 50/50 split. 2.5% to the DAO and 2.5% to the user.

-Rewards comes from fees derived from other users when trades occur on that specific strike or maybe fees are split between asset market creators.

-Users are incentivized to encourage trading on their markets because more trades = more rewards

-Eventually use a liquidity mining program to incentivize people buy/selling options. If I trade options I can earn PSY token and in addition if I created this market I will receive trading fees for that specific market.

The PsyDAO would not have to incentivize trades immediately as we are not allocating anything to the market structure, aside from the eventual liquidity mining we will provide when users trade options. I feel this would lead to a number of situations:

A) Current popular markets (ETH/BTC) have increased number of strikes that may have no liquidity (OTM strikes or expiration dates) but the core team did not have to spin them up thus decentralizing PsyOptions further

B) A few additional popular markets (ETH/BTC) are being spun up with increased trading volume due to users pushing people to trade and filling the orderbooks with liquidity. This can snowball into marketmakers noticing and further adding liquidity etc

c) New markets for assets not currently on our platform are added (Samu, Doge, any other Solana asset), which leads to Research & Discovery data which we can use to publish. Some may work out well while others go nowhere but at least we have the options available.

D) Increased markets (strike price, expiration dates) for newer assets (SOL, JFI, MSOL). This might have increased trading volume or 0 liquidity etc

By incentivizing creating markets, PsyOptions could eventually have markets filled until the end of the year across different strike prices, assets and expiration dates. PsyDAO occurs more value with a larger community. If community members are making money we all win.

Users would compete to get the “best strikes” or popular trading points for high demanded assets like ETH, BTC, SOL because they know more trades = more rewards.

Although users would need to weigh risk/gains when locking up SOL for months at a time compared to what they could earn by depositing into a farm that earns 10%-20% APY, if the market had enough volume to earn from it passively, this makes sense. Could be the best “risk free” yield on Solana since you’ll be able to eventually retrieve your SOL rent back that you used to create the market minus the minimum transaction costs.

There are three issues I can think of that may occur:

  1. Tons of useless markets differing in strike prices by a digit ie 2000 strike price vs 2002 strike price

  2. Possible scam tokens being thrown on the books

  3. Fee sharing may look like a security issue

  4. What comes to mind is to have a “pricing incentive program” for assets. Essentially a model that we would want to see our books filled with. Basically us saying “You can only receive rewards for these strikes for these or any assets”. Similar to a type of bounty program

-ETH strikes in increments of 100 or 1000
-BTC in increments of 1k, 5k or 10,000
-SOL in increments of 10 (for now)

Example: a range of ETH markets that would be available for the program might be:

but a 2111 strike market would not receive rewards so users would be less incentivized to spin up a strange strike price for that asset market. For new markets or a new tokens it doesn’t matter much if there’s strange strike prices since its free R&D.

  1. Regarding scams, I hope there’s a way to verify or check against tokens through token listings on various platforms like serum to ensure the right tokens are being traded. Otherwise users will just need to do research before buying unknown tokens.

  2. This would be a form of yield farming in a way, stake SOL for rent earn APY for markets. Not sure but its a cool idea. I’m sure im missing a ton of risks and factors but let me know your thoughts

I think this is a great first take on some ideas to incentivize the order books!! I have a few concerns from an architecture perspective, so it would be great to see a more detailed plan and program. I don’t think it’s worth the team and community worrying about scam tokens being on the books or tons of useless markets because there is nothing anyone can do to stop that in a permissionless program that allows anyone to create a market.

This needs to be way lower. Uniswap charges 0.3% for takers and Serum charges 0.04%. Could you do more research on fee structure for options?

This is pretty interesting because it then puts it on the market creator to go and get liquidity, but my hypothesis is that it will be hard for most to rally liquidity to a new market they spun up.

Liquidity mining programs need to be carefully thought out and I think there are a lot of questions and concerns on a simple statement like this. Doing a purely volume based liquidity mining program causes lots of wash trading. What’s to stop me from selling an option and buying my same option to capture some incentive? I would look more into order book liquidity mining programs and those that heavily incentivize makers for leaving their capital on the order book and at the best price.

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