TL;DR: Add an order book while keeping the AMM; maker-taker fee structure with no fees for makers; eliminate AMM liquidity fee

[Austin] Uniswap v3 instead of CLOB

• IMO, range orders using the new Uniswap system is the more powerful/correct way to implement a limit order https://uniswap.org/blog/uniswap-v3#range-orders
  • (and also liquidity provision in general)

Problem: Liquidity management using AMMs

• AMMs are a must on a platform for user-created markets because the median market will be very small with limited trading

• The creator can subsidize liquidity when creating the market, but ideally we’d like

  1. user-provided liquidity

  2. liquidity that scales as volumes increase

• Uniswap offers one system of liquidity management that works with our AMM

  • Traders can earn liquidity fees by posting capital in exchange for shares that they can later redeem for their pro rata allocation of the liquidity pool.
  • In a low-volume market, the liquidity fees have to be huge to incentivize traders.
  • Providing liquidity is a bet against volatility, and difficult for traders to model (doing it properly would involves complex option math).
  • Way too complicated to explain to normal users!

Solution: Limit orders

• Traders can post limit orders to the order book to buy or sell amounts at a particular probability
  • E.g. Buy 100 shares of YES @ 37%
• Fixed-payout AMMs play nicely with order books
  • Orders on the book are filled first before using AMM’s liquidity
• Order books are vastly more intuitive and familiar than Uniswap-esque liquidity management
• Order books are better at providing liquidity for the largest markets
• Can offer a maker-taker fee structure where traders who post limit orders pay no fees
• With user-provided liquidity in the form of limit orders, we can eliminate the liquidity fee on the AMM
• Downsides:
  • Significant increase in UI complexity to the user
  • More technical debt on backend
    • harder to do things like move to a new db
• Timeframe: Uncertain
  • Still many higher-priority betting-related items to work on now, including porting old binary DPM markets to new AMM
  • In the interim, I may allow users to directly inject liquidity to subsidize markets

Your probability prediction + limit orders

(James’ thoughts)

There’s a clean way to combine limit orders with a popular user-request of setting your probability prediction for the market.

Our UI could be transformed.

• Instead of Buy YES and Buy NO, you set your prediction and an amount
• Behind the scenes we convert this into a limit order: Buy up to your chosen probability (with yes or no shares depending on if your chosen probability is higher or lower than the market)
• Any bet amount that is not matched by another user or the AMM is kept as an open order, creating liquidity for future traders.
  • You can modify/cancel this “prediction” whenever you like.

It’s more complex in that the user has to input two numbers. But, in a way, it is also simpler.

• Today, buying YES for M$ 100 is not very clear. You are not in control of how much the probability will change. And it not intuitive to new users whether to buy YES or NO and for how much.

Pros