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Reward Distribution

For a mature market, it should be ensured that participants are rewarded for contributing useful and accurate information, in this case, for sharing their market making strategies and liquidity provision. Therefore, reward distribution, the primary goal and motivation of market makers, should be the true focus of incentive structure design. For Jungle Exchange, market making profits are derived from three sources, which will be covered in the following chapter:

  1. Position profit from market making strategies

  2. Fee rebate from market making activities


Position Profit​

Position profit and loss (PnL), refers to the real-time profit and loss caused by price fluctuations of the MM Pool positions held. This portion of the profit serves as a real-time reflection of total capital value in the pool.

In essence, it is a zero-sum game that market makers and traders are playing, without taking additional costs like trading fees into consideration. Any losses incurred by one party result in an equivalent gain for the other. When viewed from the perspective of the MM Pool, if a trader’s position profit is positive, the pool's position profit will be negative. Since the pool serves as the market maker and enjoys additional advantages in terms of opening prices, position profits for liquidity pools are generally expected to be positive.


Fee Rebate​

The purpose of fee rebate is to lower the market making cost. In early stages of the market, Jungle Exchange’s fee rebate will be at a relatively high rate. For market makers, not only does this indicate higher incentives for their market making contribution, but also an extra share of the platform’s trading fee income.

To better incentivise market making, we set the fee rebate mechanism as follows:

  1. For each order executed, a tag of Maker/Taker will be marked. Maker refers to the passive side of the market taking the proceeding orders, and Taker means the proactive side initiating the order. Fee rebate here applies to the market maker pools where matched orders are executed passively. For instance, if Pool A closes position, and orders matched with Pool B are executed, fees will be rebated to Pool B as Maker.

  2. Within a specific timespan, protocol’s total trading fee revenue is the sum of fees contributed by Makers and Takers. If the fee rate of Makers equals to that of Takers, then both contribute to half of the total amount. In the early stages, the total fee rebate will equal to 100% of maker fee plus 30% of taker fee. As the platform gradually grows in size and total volume, the above ratio will be adjusted based on the stage of development as well as governance proposals.

  3. Rewards will be distributed in a periodic manner. Once each time period has passed, part of the platform trading fee revenue will be distributed to Pools. In each pool, rewards are available to be claimed for the market makers who entered before the start of the time period, the amount of which is proportional to the amount of LP tokens. If rewards are not claimed in time, they will be accumulated to the next round.

  4. Formula: Contribution will be quantified in terms of several weighted dimensions, the mathematical abstraction of which is shown as below:


fee rebate(A)=total fee rebate×pool score(A)total pool scorepool score(A)=kˉ×Fˉ=∑kiFi(A); where ∑ki=1\begin{array}{l} \text{fee rebate}(A) = \text{total fee rebate} \times \frac{\text{pool score}(A)}{\text{total pool score}} \\\text{pool score}(A) = \bar{k} \times \bar{F} = \sum k_{i} F_{i}(A); \text{ where } \sum k_{i} = 1 \end{array}

Here kik_{i} is a weight constant for the iith factor, and FiF_{i} is its corresponding measure function.


Reward Cycle​

While the profit and loss of held positions are reflected real-time within the MM pool, the portion of fee rebates are not revealed until the statistical period concludes. These fee rebates are calculated based on the contribution model, where rewards are distributed proportional to their amount of liquidity provided at the start of the period. The specific formula is as follows:


reward in pool a=fee rebate(A)×minimum value lockedtotal value locked(A) \text{reward in pool a} = \text{fee rebate}(A) \times \frac{\text{minimum value locked}}{\text{total value locked}(A)}

reward in pool A=fee rebate (A)minimum value lockedtotal value locked (A)

From this, it is evident that adding additional liquidity during the current period does not subsequently add to reward shares for this period (as it does not change the minimum value locked). This portion of liquidity provision will not be reflected in rewards until the next period. Conversely, removing liquidity will lead to a reduction in rewards for the current period.


Referral​

In the initial stages, in order to incentivise and reward our early adopters, we have introduced a referral program, where users are able to easily share Jungle Exchange with friends, on social media, in communities, and so on. Depending on the actions of the invitees on the platform, such as connecting wallets, authorizing transactions, providing liquidity, engaging in perpetual trading contracts, and more, we offer different tiers of rewards to the referrers.

The specifics of the referral program are yet to be finalized. Those interested can follow our official accounts and join our communities for updates as we move closer to its official launch.