Funding Request: Polymarket CLOB Liquidity Mining Program

UMA Protocol Funding Proposals
1

Project
Polymarket

Proposers
Jared Kehlmann, Market Curator & Community Manager
Mike Shrieve, Protocol Lead

Emails
jared@polymarket.com
mike@polymarket.com

Summary
Proposal to provide $UMA-denominated liquidity mining rewards on Polymarket to bootstrap its new Order Book and to devote engineering resources towards Order Book supporting products and tooling, based on the performance of key performance indicators over the course of the original liquidity mining program, on-going from May 2022.

Polymarket has been the most successful UMA integration partner and grant recipient, and has been responsible for 97% of all Optimistic Oracle requests. (Including 99.02% on V2 – source: https://dune.com/loset/uma-proposer-data.

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Additionally, Polymarket’s UMA integration has spurred growth in the UMA community and user base, increasing the rate of UMA Oracle usage by multiple orders of magnitude, and clearly demonstrating UMA’s indisputable product-market fit. The initial grant was efficiently allocated to incentivize liquidity, and has lasted over three times longer than initially expected. UMA is the most critical integration for Polymarket, and Polymarket is UMA’s marquee application. The partnership has proven to be symbiotic.

Polymarket now requests 1,250,000 $UMA from the UMA DAO to allocate towards growing Polymarket’s new Order Book. Polymarket will use the $UMA grant to bootstrap liquidity on the Order Book and to invest in engineering resources dedicated to improving the user experience for market makers and traders alike. These deliverables are designed to accelerate the usage and adoption of the Order Book and to induce a strong network effect, which in turn will lead to exponential increases in UMA’s TVL, value secured, user base, and number of markets resolved by the Optimistic Oracle.

We acknowledge this is a significant request, but given the importance of Polymarket to UMA, being responsible for 97% of all requests, and Polymarket’s relationship with UMA for over a year, we believe it is within UMA DAO’s interest to invest treasury tokens in the adoption and growth of Polymarket’s new market structure. We’re confident it will create significantly more value for $UMA stakeholders than what is being expended.

Description
The partnership between Polymarket and UMA, on-going for over a year, has proven instrumental to the continued growth and success of both protocols. UMA’s Optimistic Oracle provides a dependable, decentralized resolution source for Polymarket, with over 3,500 markets resolved by UMA to date. In turn, UMA proposers reap the rewards available to oracle proposers, the Optimistic Oracle and greater UMA protocol continues to be battle-tested, and the UMA community sees an influx of informed proposers and DAO participants from the Polymarket community. Additionally, Polymarket has developed and open-sourced two key integrations with the Optimistic Oracle: the original UmaCtfAdapter, deployed in January 2022, and the UmaCtfAdapterV2, deployed in October 2022 and pioneering the use of UMA’s event-based OptimisticOracleV2. Polymarket requests comprise 99.02% of all OptimisticOracleV2 requests.

In February 2022, Risk Labs granted 100,000 $UMA to Polymarket to fund a 10-week rewards “pilot” program. The program was a success, and, in May 2022, Polymarket successfully submitted a proposal to the UMA DAO to receive a 160,000 $UMA to be distributed over an estimated 12-week period. Polymarket has been exceptionally frugal with the grant, consistently iterating on their rewards methodology to get the best return on investment while minimizing the rate of $UMA distribution: Polymarket still has 12,000 of the 160,000 obtained from the DAO, and the liquidity program has been on-going for 54 weeks.

Over the duration of the program, 246,300 $UMA has been paid to 971 unique addresses, with a dollar value of $704,418 at a price of $2.86 ($UMA price on 3/16/23 of $2.20 + 30% premium). Over the same period, Polymarket has paid out $635,383 USDC as USDC-denominated rewards. Additionally, the majority of UMA proposers were introduced to the ecosystem via their $UMA exposure from using Polymarket.

Formerly, rewards were distributed to providers of liquidity to Polymarket AMM pools. Due to the nature of binary conditional tokens and impermanent loss, very active and informed management of positions is required to profitably LP in these pools. To increase liquidity in the markets and improve the user experience for both traders and liquidity providers, in December 2022, Polymarket launched its non-custodial, central limit order book trading system, or CLOB. The CLOB allows market makers to much more efficiently provide liquidity, decreasing their risk and overall capital costs, while improving the trading experience through decreased price impact, and increasing volumes and open interest. As users grow more comfortable with the CLOB, and Polymarket-provided tooling improves, Polymarket expects open interest and volumes to surpass the all-time highs by an order of magnitude. In the 2 months since launch, Polymarket has already seen success with modest $UMA-denominated liquidity rewards, which have led to 1-2 cent spreads on exotic, UMA-secured markets, and the onboarding of 338 unique market makers. You can find the rewards methodology here: https://polymarket.github.io/slate-docs/#incentives.

The CLOB is still in its early stages, and to kickstart the marketplace dynamics uniquely enabled by CLOB-traded markets, Polymarket seeks to distribute $UMA rewards to providers of actively managed liquidity on CLOB-traded markets. With the AMM, there is an inherently high risk of impermanent loss when LPing inversely correlated token pairs, as is the case with conditional tokens in binary markets. Nonetheless, with relatively small liquidity incentives per market, Polymarket was consistently able to attract moderate levels of liquidity. With the CLOB, the risk of impermanent loss no longer exists; instead, there is a path toward sustainable, organic liquidity, even for thinly traded markets. As such, the effect of liquidity incentives on liquidity available to traders and overall volume is amplified. Market makers are encouraged to develop strategies that will allow them to serve early trader demand and efficiently market make in the nascent CLOB-based Polymarket ecosystem.

The CLOB’s increased capital efficiency allows a massive expansion in the total number of markets available, which is also enabled by the multi-faceted capabilities of UMA’s Optimistic Oracle. On the roadmap are recurring markets: auto-deployed markets which resolve regularly. Incentivizing a network effect around these markets will lead to consistent, reliable requests to the Optimistic Oracle, increasing the total daily rewards paid to UMA proposers and boosting the overall volume and value locked by the Oracle. In addition, the UMA proposer community will continue to grow more skilled as proposers and disputers as more diverse market types are supported.

Polymarket strongly believes that a rewards program dedicated to the CLOB will benefit both parties. Polymarket has established a strong methodology and is rapidly iterating to improve efficiency and effectiveness. This proposal comes at a key moment in the expansion of total markets, liquidity, volume, and open interest.

KPIs
View UMA x Polymarket Analytics on Dune at https://dune.com/loset/uma-proposer-data.

  • All-time 3,554 requests from Polymarket out of 3,664 total UMA requests (97% Polymarket)
  • ~3,500 markets successfully resolved with the Optimistic Oracle.
  • $84,095 USDC Optimistic Oracle rewards paid to UMA proposers
  • 9 all-time proposers in the UMA Oracle system prior to Polymarket’s integration, now 54.
  • ~1,000 unique $UMA recipients

Deliverables

  • Provision of liquidity incentives for market makers in CLOB-based Polymarket markets according to the methodology outlined here: https://polymarket.github.io/slate-docs/#incentives.
  • Development of products and tooling to support the Order Book: improving the user experience from trading to redemption, and allowing market makers to more effectively manage their positions.

Total Budget Requested
1,250,000 $UMA
Wallet Address: 0x8cBefc47656eCb2e9E2cb89731283CC1e8cD7f4E

Team
Polymarket is a leading decentralized finance (DeFi) project, with a global, technical team. It is the largest decentralized prediction markets platform in the world by volume.

Poll

Do you support moving forward with this proposal?
  • Yes
  • No

0 voters

2

if UMA is serious about using their treasury to grow the project and support projects building on this it’s an absolute no brainer.

Polymarket is one of the only legitmate DeFi apps that people actually use and Uma is lucky to have them tbh. Without Polymarket Uma is basically vaporware at this point so it makes a lot of sense both financially and for growth of the protocol.

3

I ain’t quite convinced that oracle requests be the proper way to gauge traction, particularly since UMA ain’t got no fee model, so we ain’t really able to determine which kind of traction is more precious. A solid case might be made for volume, and I reckon volume’s a finer measure. I’d wonder the market worth of each ended market over a specific time frame.

Across’, UMA’s grandest and top-performing integration, surpasses $1.5bn in volume over a year.

Polymarket ain’t sufficient to establish UMA, but offloading tokens on a down-in-the-dumps token is in snap area. If Polymarket was a Web3 initiative with its own coin then a swap or share deal might be involved and would be logical for UMA holders, as it’d boost their fundamental worth whilst shoving more tokens into the market. To sum up, UMA’s oracle requires more adoption, no question. Keepin’ polymarket liquid won’t resolve that problem, but releasin’ this quantity of tokens is difficult to stomach.

1 Like
4

why does polymarket want to build on vaporware?

1 Like
5

At 1.25m $UMA, this is an extremely high request - especially as it follows on from 2 previous periods of funding, one of 100k $UMA from Risk Labs and a further 160k $UMA from the UMA DAO under a revised proposal that initially requested 500k $UMA.

Discussions around UMA DAO support for Polymarket less than a year ago highlighted concerns that this may be the first of repeated requests, and there was reassurance that this was not the case, which gives pause around both the the scale and timing of the request, especially as in the previous discussion, one of the polymarket team noted that it was not sustainable for entities without a token to contribute incentives on the scale of a DAO.

As an UMA tokenholder, although I am keen to see our treasury be used to give support to nascent protocols built on the Optimistic Oracle, Polymarket’s notable volume and significant reputation in the space would suggest that it has reached a level of maturity where it can now explore alternative approaches.

I’m concerned that by supporting this proposal, UMA would be undermining Polymarket’s long term growth and by subsidising in this manner may even be perpetuating an organisational form which comes with regulatory risk in an increasingly hostile macro environment.

Like @Conky I’d be interested in exploring a token swap, were Polymarket looking at evolving into a DAO to enable sustainable incentivisation; build partnership between Polymarket and UMA DAO and cement Polymarket’s role as a leading prediction market in the Web3 space.

Note: posted in personal capacity as UMA tokenholder

6

Dear Mike, Jared,
Thanks for your support of the UMA community and the proposal. Pleased you’ve put prior grants to good use

I agree UMA should try to support new projects on the platform - but I’d much rather see this amount of tokens split across 12 new teams who can bring fresh ideas and follow in Polymarket’s footsteps.

I’m particularly concerned at any proposal of size lumping together engineering and liquidity provision. Should dedicated liquidity providers appear, the UMA community could consider doing token loans or similar to match the capital that those liquidity providers put forward…easy to structure collateral with KPI options or similar.

An open question: have you tried to raise equity capital from your existing investors or new professional investors to support the new product launch?
From a quick look on crunchbase, it seems you are well connected to smart investors who would be in the business of backing notable progress–or certainly help you meet professional investors who might be better aligned to your success than grant $$.

Are you planning on launching a token to support and grow your ecosystem?

If you have very specific, tactical things, I’d recommend starting a different funding request (e.g. 50K matching liquidity) or similar – otherwise I’d respectfully suggest we try to direct this kind of proposal to the next wave of builders on the UMA ecosystem.