Maker Liquidity Pool (USDT ERC-20) — Beta

Danny · January 12, 2023, 10:07am

Key Points:
NOTE: PLEASE DO NOT SEND FUND DIRECTLY FROM A CENTRALISED EXCHANGE, YOU WILL LOSE YOUR FUND.

The Maker Liquidity Pool only accepts USDT (ERC-20) as deposits, while rewards are distributed in $FX (ERC-20).
ONLY private blockchain wallets can participate. Please DO NOT send funds from an exchange.
The total amount of rewards that can be earned from depositing into the Maker Liquidity Pool is around 600,000 $FX,or each epoch (28 days) is 336,000 $FX
The Maker Liquidity Pool launch date is 19th Jan 2023 12pm (GMT+8)
The Maker Liquidity Pool is not principal guaranteed. Participants are subject to risks of losing their deposit.
The purpose of the Maker Liquidity Pool is to provide funds for verified market makers to enhance the order book depth on MarginX.
The Maker Liquidity Pool will first be deployed on the Ethereum network. Participants will need $ETH to pay gas fees to withdraw their principal and rewards. Take note that the fluctuation of gas fees might override the reward amount.
Users can only withdraw their funds during a designated time period.
If you prefer to take part in a principal protected program, you may wish to consider MarginX’s 100-Day Incentive Program.

Overview

On 6 December 2022, MarginX launched a 100-Day Incentive Program with 2 million $FX worth of trading rewards to be distributed.

The trading rewards are split as such: 1.2 million $FX to makers, 400k $FX to takers, and another 400k $FX to depositors. The Incentive Program has attracted over 500+ wallet addresses, garnered over 500k USDT in TVL, processed over 200 million transactions and over 150 million USDT in trading volume. The result is fruitful for a 2-month-old project, but we believe there is room for improvement.

We have received feedback from our community, mainly that:

There needs to be an enhancement of order book depth and liquidity. Insufficient market depth causes high slippage.
The onboarding process is too complicated. There are too many steps for new users to deposit funds into MarginX, which makes the whole process not user-friendly.
The environment is too isolated. MarginX is only running on the Function X network and not connected to other networks, such as Ethereum, BNB Chain, Solana etc.

Improvements (Mechanics)

The team has noted the above feedback and, as a result, would like to introduce an upgrade to the way maker rewards can be earned, in the form of our latest cross-chain structured product: a Maker Liquidity Pool on the Ethereum network. This Maker Liquidity Pool is a dedicated fund handled by professional market makers, to provide liquidity and depth on MarginX, and in return to help earn maker rewards.

The mechanics are simple. Users deposit funds into a smart contract on Ethereum (the team will expand to other networks in the near future) which bridges the funds automatically into f(x)Core and, subsequently, MarginX. Only whitelisted and verified market makers can ‘borrow’ these funds from the liquidity pool to trade, and the funds can only be deployed for market making through a dedicated MarginX wallet address.

Funds will be deployed to the existing trading pairs on MarginX in this manner:
30% BTC/USDT;
30% ETH/USDT;
40% FX/USDT.

Note: ONLY private blockchain wallets can participate. Please DO NOT send funds from an exchange.

Risks and Rewards
Market makers will refer to an external price oracle and the statistical distribution order to fill in the order book depth. Statistically speaking, market making is a profitable trading strategy as it earns the spread for every transaction. However, the team has no track record and historical statistics to support this assumption. Thus, there will be neither promised returns nor principal guarantees for this beta version of the Maker Liquidity Pool. Participants deposit at their own risk. Due to requests for privacy by the external market makers, the team will not reveal their identities at this stage as well.

The Maker Liquidity Pool serves as an upgrade to the Maker Incentive section of the 100-Day Incentive Program. All participants of the Maker Liquidity Pool shall be rewarded in $FX, using the remaining amount of $FX rewards for the Maker Incentive section (around 600,000 $FX). The beta version of the Maker Liquidity Pool shall be open for 50 days, to average 12,000 $FX in daily rewards.

The distribution formula is as follows:
Individual’s deposit / Total funds in the pool * Total daily reward

For example, Alice deposits 10,000 USDT, the total pool size is 100,000 USDT and the total daily reward is 12,000 $FX. Alice will be getting 1,200 $FX (10,000 / 100,000 * 12,000 $FX) on that day. In practice, the reward will be calculated on a per block basis.

Rewards are distributed in $FX (ERC-20) and collection is not automated. Participants need to claim them manually (with ETH as gas fees) and they can be claimed any time.

Withdrawal Process
Market making is a rather long-term process and the stability of the source of funds (in this case, the liquidity pool) is important. The fluctuation of funds will not only affect the order book depth but also the open and closed positions, especially in a single-sided market. Hence, during each epoch (every 28 days), participants can only submit a withdrawal request during the first 14 days. For the next 14 days, a ‘preparation period’ shall be implemented where participants cannot request for a withdrawal of funds.

The Maker Liquidity Pool will respond to withdrawal requests at the end of the epoch (beginning of the next epoch) and participants cannot cancel withdrawal requests once they have been made. However, any $FX rewards will still be claimable until the withdrawal has been released (end of the epoch).

For example, assume Epoch 1 starts on 1 February 2023. The end of Epoch 1 would be 28 February 2023. All withdrawals will be released on 1 March 2023 (first day of Epoch 2). Alice as a participant would need to make the withdrawal request before the end of 14 February 2023 if she intends to receive the withdrawal on 1 March 2023.

Even though she has made a withdrawal request on 14 February 2023, Alice will still be able to claim her $FX rewards for her February deposit until 28 February 2023. Once her withdrawal has been released on 1 March 2023, she will not be entitled to any $FX rewards thereafter unless she puts in a new deposit.

Take note that withdrawals are not automated. Participants need to withdraw their funds from the smart contract to their private wallet manually.

A step by step guide will be provided in the later stage.

Conclusion
In layman’s terms, the Maker Liquidity Pool system acts similarly to a ‘trust fund’ or an ‘ETF’ in the TradFi world. Participants deposit or place their funds with a ‘fund manager’ who helps them manage and trade their funds with full transparency and dedication.

This beta version of the Maker Liquidity Pool (Ethereum) is MarginX’s first attempt at a cross-chain structured product. The team aims to integrate more innovative structured financial products to the masses in the near future.

To leave you with a last word, always DYOR and only participate if you fully understand the mechanics and risks involved.

NOTE: PLEASE DO NOT SEND FUND DIRECTLY FROM A CENTRALISED EXCHANGE, YOU WILL LOSE YOUR FUND.

-MarginX Team

Danny · January 12, 2023, 10:08am

To further clarify the risk sharing mechanic:

Assume Alice deposits $200; Bob deposits $300; Charles deposits $500 on 1st Feb , in total $1000

Alice makes the request of withdrawal $200 on 10th Feb;
Bob makes the request of withdrawal $300 on 14th Feb;

on 28th Feb, Market maker loss $100 (initial balance is $1000)

The loss of $100 shall be shared among Alice, Bob and Charles
Alice 100 * 200 /1000 = $20
Bob 100 * 300 /1000 = $30
Charles 100 * 500 / 1000 = $50

After deducting the loss, parties shall get on 1st Mar
Alice shall get back $180 ($200 - $20)
Bob shall get back $270 ($300 - $30)

At the same time, the Maker liquidity pool shall have a debt of $50 to both Alice and Bob

Hope that clarifies

SCENE · January 12, 2023, 11:41am

Hi Danny, thank you for the amazing write-up.
I DM-ed you a question regarding the Maker Liquidity Pool.

zaccheah · January 12, 2023, 12:09pm

Hi @Danny, can I understand that the new proposal will

extend maker program to ERC-20 tokens by having a pool in Ethereum,
extend to non traders as users only need to deposit ERC-20 tokens and forget about placing market trade themselves?

Danny · January 12, 2023, 1:23pm

thanks for the question

that’s correct - users can participate from Ethereum blockchain

that’s correct, non trader can now stake their fund with the professionals while earning the maker reward

SCENE · January 13, 2023, 5:39am

Thank you for the permission to post it here @Danny!
Hope I can share my humble opinion with you and the public.

The rewards: 600k $FX (split between liquidity providers)

What about the market-making profits?
Similarly to other structured products/services, the service profits are usually split among the liquidity providers, with the MMs receiving a cut or performance fee for providing the service.

Since there is extra risk and the principal is not guaranteed, would it be a good idea for the profit to be distributed among the LPs and MMs in a ratio-based distribution?

In other structured products, the usual split is 90/10, adjustable:

90% profit to Liquidity Providers
10% performance fee to Market-Makers

Main Reason:

The Market-makers are not at any risk - they are providing their Market-making service.
Since the Liquidity Providers’ principal is at risk, should there be an extra yield to compensate for the risk?
Scalable profit because more LPs = More Funds = More Profits Split = Win-win-win situation

Which is what other protocols are also doing. The LPs, MMs, and MarginX all benefit from this.

One example is ‘Sommelier’ from Cosmos, made by the Core Team of Cosmos.

Sommelier is just a platform to connect LPs & Institutions with institutional-grade services
Institutions provide automated services (No risk except reputational risk)
Liquidity providers provide funds (Capital at risk)
Funds are used by whitelisted institutions to generate efficient yield
Profits are split on a ratio-based distribution (90/10, adjustable)
No split if no profits - Variable, according to performance

What are your thoughts on this?

In the future, there could be multiple market-makers offering their own services to MarginX, and users could choose the best-performing MM to provide liquidity to.

Profits are all variable, according to each MM’s performance and track record.

Users are in control of who they give their funds to
MMs do what they do best → market-make
MarginX stand to gain it all simultaneously - volume, liquidity, services, user control, tvl

Danny · January 13, 2023, 6:45am

thanks for the suggestion @SCENE

The profit sharing model makes perfect sense (similar to trust or mutual fund), fund manager gets a cut on the earning, whereby the fund contributors get the reward.

Team will include this feature on our future roadmap.

However, for the existing beta version - the LP concept and profit sharing feature shall NOT be implemented (yet).

orbitant · January 17, 2023, 9:23am

COMING SOON

Watch out for our big announcement in the next few days.

Hint in the video

Danny · January 19, 2023, 2:30am

I know everyone is exciting about the upcoming Maker Liquidity pool, but please take note that PLEASE DO NOT SEND FUND DIRECTLY FROM A CENTRALISED EXCHANGE, YOU WILL LOSE YOUR FUND.

Dione · January 19, 2023, 4:02am

LIVE NOW: MarginX Maker Liquidity Pool (Beta)

Deposit USDT-ERC20 and earn @FUNCTIONX_IO $FX rewards!

maker.marginx.io
19 January 2023, 12pm (GMT+8) — until 11 March 2023

Why? What? How?

ONLY private wallets allowed. DO NOT send funds from a CEX.

NOTE: Maker Incentives part of the initial 100-Day Incentive Program will no longer be applicable after the upgrade.

orbitant · January 19, 2023, 10:25am

EXTREMELY IMPORTANT

When depositing into the MarginX Maker Liquidity Pool, ONLY use a private blockchain wallet.

DO NOT send funds from a CEX unless you want to lose them.

Darry · January 19, 2023, 12:04pm

a question is there an end date for the withdrawal … or can this simply be done after the expired period

Darry · January 19, 2023, 6:32pm

what happens if i didn’t make the withdrawal request , will i lose my usdt , i don’t understand that part

SCENE · January 20, 2023, 1:29am

Hi Darry, You can just withdraw once the program ends or withdraw anytime you like, within any of the first 14-day window periods of each epoch.

Danny · January 20, 2023, 2:21am

hi Darry,

If you did not make the withdrawal request within the ‘withdrawal request period, 14days before the end of the current epoch’ - you cannot get back your fund.

‘No withdrawal request within the request period, No fund shall be returned’

what happens if i didn’t make the withdrawal request , will i lose my usdt , i don’t understand that par → No, you will not lose your fund, it is just you cannot withdraw your fund within this epoch. You have to wait until the next epoch (provided you make the withdrawal request) for withdrawal.

Hope that clarifies.

Darry · January 21, 2023, 7:27am

do we also get earnings or just rewards ,

SCENE · January 21, 2023, 7:41am

Just $FX rewards for Beta version, profit sharing not implemented (yet).

Darry · January 21, 2023, 10:17am

on this basis i still have to review my risk , i also have to take into account the ETH Fee , rewards viewed after 48hrs will the new epoch give Earnings ??

Darry · January 21, 2023, 10:24am

I don’t want to put pressure on the MM here

Danny · January 21, 2023, 11:42am

no, beta version does not support

Hence, please evaluate the risk and reward carefully before you participate

I would like echo again:‘always DYOR and only participate if you fully understand the mechanics and risks involved.’