Guide: Providing Liquidity to your Market
This guide provides a comprehensive overview of becoming a Liquidity Provider (LP) on 9lives, a decentralised prediction market platform leveraging an Automated Market Maker (AMM) system.
Learn the strategies, risks, and best practices to maximize your earnings while supporting market efficiency.
Why Provide Liquidity?
Providing liquidity on 9lives offers several benefits, but it comes with inherent risks. Here's what you need to know:
Earn Fees from Every Trade: Collect a percentage of each transaction as a reward for your liquidity contribution.
Protocol Incentives: Top LPs may receive additional rewards through 9lives' incentive programs.
Market Efficiency: Your liquidity helps ensure smooth trading and accurate price discovery.
Risk Awareness: This is not a risk-free endeavor—potential losses due to market volatility or impermanent loss apply.
How It Works
9lives utilises an AMM system tailored for prediction markets. Here's how liquidity provision functions:
Equal Outcome Prices
When you add liquidity with 50/50 odds (e.g., at market creation), you receive 100% liquidity shares.
Unequal Prices
If odds differ, you receive liquidity shares plus outcome shares for all outcomes except the least likely one. This allocation reflects the market's current probability distribution.
When to add liquidity?
Best Times to Add Liquidity
Timing is critical for optimising returns. Consider these scenarios:
Market Creation (50/50 Odds): Adding liquidity at launch maximizes your share of fees and outcome tokens.
Underpriced Favourites: Provide liquidity when you believe the current favorite is undervalued and likely to win, aligning with your market conviction.
Worst Times to Add Liquidity
Avoid providing liquidity in these situations to minimise risks:
Overpriced Favourites: If you suspect the market overvalues the favorite, your returns may suffer.
Low Trading Volume: Insufficient volume can fail to offset the risks of impermanent loss.
Disagreement with Consensus: Only challenge market trends if you have strong, data-backed confidence.
Critical Exit Rule
To protect your investment, follow this key rule:
Remove Liquidity Before Market Closure! If prices are uneven, withdraw your liquidity to receive shares of losing outcomes. Sell these shares before resolution to avoid potential losses.
Strategy Tips
Enhance your success as an LP with these actionable tips:
Add Liquidity Early. Enter at balanced prices to secure a larger share of fees.
Monitor Price Movements. Track outcome prices closely to adjust your strategy.
Balance Income Streams. Consider both fee income and the potential value of outcome shares.
Promote Your Markets! Increase trading volume (and thus fees) by encouraging community participation.
Furthermore... choose markets wisely to maximize profitability
High Expected Volume: Prioritise markets with active trader interest.
Conviction in Outcomes: Select markets where you have a strong belief in the result.
Active Communities: Engage with markets supported by engaged user bases.
Note: Trading volume is the most critical factor for LP success.
Getting Started
Providing liquidity on 9lives can be lucrative with active management and a clear exit strategy. Follow these steps:
Start Small: Begin with a modest investment to learn the platform's dynamics.
Understand Risks: Familiarise yourself with impermanent loss and market volatility.
Plan Your Exit: Always have a strategy to withdraw liquidity at the right time.
Ready to Dive In? Visit 9lives Official Site to get started.
Additional Resources
Last updated
Was this helpful?