great points, i tried out Omen while ago and some markets had decent liquidity, but some other markets were extremely tiny.
I think we need more liquidity on these markets, being able to bet 1000$ on most of these topics without pushing the slippage too much would be a good start maybe ?
I think you also have to replicate what is realistic for potential market creators to actually provide in liquidity and I doubt anyone is going to put in much more than $5k anytime soon with the notable exception of Gnosis.
I would also say the greater need is experimentation in market type to see what people are interested in betting on which also pushes towards more markets with smaller liquidity pools. That said for certain types of market - eg Sports before game starts - there shouldn’t be too much risk of a massive change in odds so should be able to provide more liquidity. Potentially the more interesting question is what the Dao does to offset risk if the sports betting was one-way - could it lay off risk onto Degens etc?
In the crypto space 5k$ is very low (in last month we had 8 markets with more than 5k$ of average liquidity). You would have a lot of people who wouldn’t bother doing 5k$ deal in crypto. If the deals are attractive large sum of money can flow as we’ve seen with the yieldfarming craze.
Sports are quite safe for liquidity providers (as long as they remove liquidity before the event) and could be a way to allocate DAO ressources.
It may be simpler for the DAO to take the risk, either it pays off for the DAO, either it pays off for users which also pay off for the DAO by bringing users.
“It may be simpler for the DAO to take the risk, either it pays off for the DAO, either it pays off for users which also pay off for the DAO by bringing users.”
The above is in my humble opinion a very simplified statement regarding potentially utilising hundreds of thousands of USD worth of treasury funds and putting them at direct risk. There are many potential scenarios where where we could simply loose funds and not achieve sustainable growth in user base, so presenting it as a simple win/win case is unsatisfactory.
I’d appreciate a more detailed plan/suggestion for capital allocation:
i) Sports might be awesome because there is lower risk, but at minimum we should know what we can do to mitigate risks and how big potential losses could be. What could one big whale do? Or a system of some kind? Increasing liquidity also increases the reward from anyone figuring out an attack vector.
ii) Let’s not risk 100s of thousands of USD because it is “simpler”… but because we hope to achieves x, y or z and measure against it. Is the goal simply to reduce spread and test if that drives more volume? For how long is this liquidity available to the squad? Can Omen not grow without a large amount of centralised funds to reduce spread? And under what conditions does it find its way back to the treasury? What are the likelihood of profits vs losses in that period?
ii) If this was in the region of $25k as a test, then fair enough, then we could iterate, evaluate and scale and achieve what I am asking for. But suddenly there is talk of a $250k capital allocation which I really don’t feel comfortable allocating to a small group of people with no clear analysis of goals/KPIs, risk/reward ratios and mitigation strategies.
It’s not a utilization, it’s a portfolio allocation in one of the dxDAO own product. A 250k$ allocation may lead to a monetary benefit/loss for the dxDAO of around 25-50k$ not the full allocation. Due to the way Omen automated market makers work, a lot of capital need to be deposited to avoid a high spread, this is due to the fact that the market maker should never run out of fund not matter how the market is moving. The only case where a lot of capital could be lost is if a result would be known before the liquidity is removed (and even then, that wouldn’t be the full 250k$ amount).
Omen is a 2 side marketplace. Liquidity providers and predictors. It suffers from the chicken and the egg problem:
To bootstrap it, there need to be a huge amount of money in one side of the marketplace, it shouldn’t be required forever, but it’s definitely required for bootstrapping. It’s also required to give confidence to users. If the DAO owning the marketplace finds it too risky, why would anyone else take the risk?
The DAO could ask this capital to be sent back, or keep it as liquidity.
Moreover, by making Omen better, this:
I’d say the overall estimated return is close to 0 with a 25k$ standard deviation (rough estimate, we obviously cannot predict the trades and outcomes which would happen but spreading those in 5 markets should reduce the variance compared to 1).
This is only counting the direct monetary profit/loss of liquidity providing. Having a better Omen product comes in addition and is a significant reason to do so.
Thanks @clesaege @CLCL @Dexter and @madmax for all the comments. It’s super great to hear this dialogue and see the different perspectives.
To clear things up, it definitely makes sense to start with a small amount of funds. This is why $25k was chosen - enough to try a handful of markets, but not big enough that if something goes wrong, it would be catastrophic. I personally don’t think $50k is needed in a market to be interesting to traders. But if things go well, this could be a possibility in the future.
@Dexter makes a good point that DXdao needs to learn if non whales can be LPs successfully.
Some markets would likely be shorter-term and some medium term. Shorter-term markets notional could then be recycled into additional markets.
Targeting different topics will be a big part of the experiment. What are the most popular verticals? Markets around DeFi? eSports? etc.
We want this to be a win-win scenario, but agree that it would be difficult to start this initiative with much bigger sums money.
We also need to learn how the technical mechanics of Omen Squad interacting with Omen works, and the speed at which it can happen.
Regarding some of @madmax 's detailed questions, here are some initial thoughts, but wide open for input:
but because we hope to achieves x, y or z and measure against it.
We want to learn if DXdao’s Omen interested community can collective source interesting Omen markets that attract trading activity and draw in users to Omen, can technically execute, and profitably provide Liquidity.
Is the goal simply to reduce spread and test if that drives more volume?
Target would be to have enough Liquidity that spread is not a deterrent to users. And, yes, attract users.
For how long is this liquidity available to the squad?
After a month or so, plan is to monitor how LP is doing and if appropriate recycle into more markets.
Can Omen not grow without a large amount of centralised funds to reduce spread?
Think of this as a kick starting to do one more thing to push Omen along and attract interested users
And under what conditions does it find its way back to the treasury?
The community can watch closely how the process is going, and at anytime, propose to change, stop, grow this program.
What are the likelihood of profits vs losses in that period?
Ideally, profits are made. If not profits, then maintain stability and earn fees. If losing money, then change the strategy.
Valid points @clesaege. We need to test this process and structure with $25k first, then we can always ramp it up if the DAO chooses.
We should also attract other organizations to put in LP capital too. Market creators get to choose the trading fee too, so that could be attractive.
There is also a wider point in that there will effectively only be 3 questions left on Omen in about 10 days (admittedly spread across about 6 markets) - will EIP1559 occur before April, will Berlin hardfork occur this year, will phase 0 launch this year - that have greater than $1k liquidity so there is a pressing need for new markets.
Very true. Do you have any ideas for good markets? Or even topics that we can construct markets around?
We are making a list. Feel free to share here or in Omen channel on Keybase. Thanks
There has been general support for this initiative.
A number of questions were raised and addressed. DXdao would have a goal to make this a profitable venture while learning the ins and outs of providing liquidity on different types of Omen markets.
Some community members expressed the need for this initiative to be larger in size, more like $50k liquidity for 5 markets so a 250k portfolio allocation. This is inline with future goals of Omen squad, but we think it makes sense to start smaller and make sure the process works and risks can be managed.
We can always expand later.
Over the past three weeks, we have been working with a few different teams to get Omen Squad ready for interacting with Omen from a technical perspective. The issues around the Contract Proxy Kits are on track to be solved shortly.
To start funding a few markets, we plan to request $15k of ETH worth of capital to the Omen Squad multisig. This ETH will likely be exchanged into DAI and used to provide liquidity to a few markets.
Open to any questions or suggestions.
I’m with @clesaege on pushing for a larger Omen liquidity allocation. Why be shy about investing in our current star product Omen when we’re freely throwing much more capital at unproven Swapr? While I understand the desire to start small, there’s also something to be said about grabbing the opportunity while it’s there. Omen has momentum right now and we should build upon it.
There are many unresolved issues in the US election. We can refer to the market direction of polymaker but try to create a different market.
Yes I think Omen seems to be at a temporary disadvantage in the prediction market race
@pulpmachina I hear you. As with all things DXdao does, we need to make sure the technical needs and processes are in place, the system works, and Omen Squad can do everything it needs to be able to do to manage markets and provide liquidity. This is the start.
As a process, we can put some capital to work -> evaluate -> make sure it works -> refine -> put some more capital to work -> evaluate -> refine -> put more capital -> etc…
If Dao can provide liquidity, is it possible to directly participate in transactions in the future?
Funds are provided by dao and Omen Squad and then traded 7X24 hours
We can profit from irrational traders, crowd wisdom, and risk hedging
When providing liquidity to markets, the LP often ends up taking a view on that market as well as the odds change. It will take active management to react to this and adjust liquidity and positions. If Omen Squad had a global team active 24/7, that would be awesome!
If the liquidity is mainly provided by the team, then transactions in it are almost tax-free
In the 2% market, one transaction can save 4%, which means a great advantage
AMM consumes energy very much, you have to react immediately to seize trading opportunities
So it’s important to monitor the market 24/7
The sun never sets。 lol
UPDATE: Omen Squad has been in action for a couple months now.
Unless you are watching closely, you are likely wondering how things have been going.
Omen Squad is underneath DXdao and is becoming more like an Omen Guild made up of interested parties from the community.
The two following documents were posted to IPFS by the Omen Squad in order to provide an update and show the activity in a transparent way.
Omen Squad Activity - Update Jan’21:
https://gateway.pinata.cloud/ipfs/QmRcqcAtJqNNzXTre4x7GevxUDE3Z3KyCUCyfxDwaC9Zdd
Omen Squad Activity Tracking:
https://gateway.pinata.cloud/ipfs/QmfJaFkZrGUBBXdoi2tw93cqP6voUFw6Li1oKb2hw3gVaB
If you have any questions, the keybase Omen channel is a great place to discuss.
In line with DXdao’s objectives, and as outlined by the Omen Squad, there are some goals laid out for moving forward from here.
Going Forward:
1) Continue to work towards the Omen Squad goals
2) Expand activity onto Omen xDai
3) Use more funds
4) Run more Omen Market Competitions
5) Expand Omen Squad and merge with community
6) Work towards becoming functioning Omen Guild
In order to capitalize on the current opportunity in front of DXdao with Omen, it is important to position Omen for success. One of the keys to this is to have capital ready to be deployed by Omen Squad to fund important markets on Omen.
With the imminent launch of Omen on xDai, having a number of attractive markets on Omen xDai is important.
There has also been talk of having a larger size market around the Superbowl (~$25k) and a series of other markets including Scalar markets, and further markets sourced from the Omen community.
There is an immediate need for DXdao to enable Omen Squad with funds to support Omen markets.
There will be a proposal request shortly for $50k (requested in ETH) to the Omen Squad, with the goal to fund a series of markets on Omen xDai.