A Guide to Providing Liquidity on Omen’s Prediction Markets
The DXdao are making headway with the improvements it is making on an almost weekly basis. Omen’s users have been regularly producing and trading in new and interesting markets. But one of the most crucial factors of adoption of Omen is liquidity. DXdao and Kleros are working to provide improved features and incentives for new liquidity providers to earn yield on Omen. As part of the incentivization for liquidity providers, some support is needed on how exactly to provide liquidity on the Omen platform, and minimizing any potential losses. The following should aid those who are looking to earn on their pooled liquidity.
When considering providing liquidity on Omen, here are some things to consider:
Are the odds mostly unknown throughout?
If there is a lot of uncertainty, that could potentially mean a lot of trades happening in this particular market. It is better to look for bi-directional markets like this than to pick markets with rigid positions and no activity. As outcomes become more apparent over time, it becomes worse for LPs when the volume gets absorbed by a single outcome. This and many more are things to consider. Check out the Omen Analytics Dashboard to get a sense of what markets are moving and consistently gaining traction.
How long is the market trading?
Be sure to take into account how long it would take for the market to resolve, as that is how long users are able to trade outcomes and pay fees. Markets created long before the event resolves will allow you more time to collect fees. However, markets that may have a long period before resolution may not necessarily be active during its whole lifetime. It also may not appeal for stakers who would like to participate in shorter-term markets that take weeks to resolve as opposed to months.
What digital asset is being staked?
While many prediction markets involve deposits of stablecoins such as DAI, USDC, and USDt, there are more volatile assets such as WETH and OWL being used as a means of staking in prediction markets. cDAI earns interest on your DAI, but there befalls additional smart contract risk. Consider that the value that you may win or lose in prediction markets will be affected by market movements when you redeem your outcome tokens for the underlying assets.
So you found a market that you think you could earn money providing liquidity for. Awesome. The first step is to plug in your Metamask or Wallet Connect and click “Pool Liquidity” on your market of choice.
You will see as you scroll down that you have the options of depositing liquidity if you wish to earn on fees from trades within this market, or withdraw liquidity if you have pooled your liquidity earlier and wish to exit. All it takes is adding the amount of the respective token the market allows, and pressing the Deposit button to start earning from fees.
Important note: You should immediately withdraw liquidity within a prediction market if you find out that one of the outcomes you are providing liquidity for is no longer able to win. Sometimes this knowledge is known in advance, and sometimes it is not. But be vigilant of the markets you provide liquidity to, and be cognizant of when to make the next move. Ideally you don’t want to put capital in dead or dying markets.
You can monitor fees earned by going to the market and clicking Pool Liquidity.
Pooling Liquidity in Your Prediction Market
Perhaps you have an idea for a prediction market that you would like to bootstrap. When creating a prediction market, you will have to pool liquidity to allow others to be able to trade outcome tokens within this prediction market. However, when pooling liquidity, you may want to weigh in on your opinion of the probability each outcome has. Not every binary market is symmetrical in probability. When you create a market on Omen, you will see a button called “set manual probability,” where you can adjust the probabilities of the events based on your judgment. The only requisite is you need for the outcomes to add up to 100%. This is important if you plan on putting in a lot of liquidity, as one outcome token that may have more weight than the probability warrants, may get arbitraged, and may result in you losing money.
For the Yield Farmers!
Kleros has an incentive program for liquidity providers from July 29-October 29. You can view Here are the details regarding rewards distribution:
- 300,000 PNK will be distributed each month to market creators in proportion of the liquidity of their markets over the three month period, totalling 900,000 PNK.
- A 100,000 PNK grand prize will be awarded to the most impactful creator. The decision for this prize will be voted on by the DXdao.
- Calculate your potential rewards via https://omenfarming.com/
Rewards will be calculated and distributed based on the proportion of liquidity on markets you created and how long it stays in the market.
The DXdao aims to make Omen the premier decentralized prediction market platform. For the next couple of months, all efforts will be directed towards making sure liquidity providers and users are supported and well incentivized to use this product for its simplicity, volume, and innovation. If you have questions or need additional support, visit the Omen telegram group.
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This article is for informational purposes only. Please seek independent legal and financial advice in your jurisdiction before making any investment decisions.
