Liquidity Prediction Market (LPM)

Liquidity provision in another perspective

The Liquidity Prediction Market (LPM) was invented based on idea that liquidty provision is akin to "Short Position" on derivetive market as liquidity will received more assets that they provided when assets in the same pair appreiate, in which price of short position and long position are handled by the x*y=k formula. That's wouldn't be a satisfactory case for all LPs as some of them don't want to always less amount of assets as it will be traded out of the pool.

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Core Features of LPM

1. Perpetual Participation

   • No expiration dates: Users can participate indefinitely without needing to reset or re-enter positions.

   • Consistent rewards: Earn fees and rewards continuously as long as liquidity is provided.

2. Dual Incentives: Prediction + Liquidity

   • Market Prediction: Users can stake on the Bullish or Bearish side to predict market trends and earn rewards for accurate forecasts.

   • Liquidity Provision: Liquidity providers (LPs) earn trading fees and rewards regardless of their prediction activity.

3. Reduced Impermanent Loss (IL)

   • Correct predictions minimize impermanent loss, as rewards are reallocated from incorrect stakers to correct ones.

   • This mechanism ensures that LPs are incentivized to align their positions with market outcomes.

4. Capital Efficiency and Restaking

   • LPM improves capital efficiency by allowing users to restake their LP tokens and earn additional rewards.

   • Users can strategically allocate liquidity based on market expectations while understanding the risks and rewards of price fluctuations.

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How LPM Works:

1. Provide Liquidity

   • Add liquidity to a trading pair (e.g., ETH/USDC) to receive LP tokens, which represent your share in the pool.

   • Example: Providing single-sided liquidity for ETH/USDC grants you LP X tokens representing ETH.

2. Stake LP Tokens in LPM

   • Choose a market side to stake your LP tokens:

     • Bullish: Predict the price of the asset will increase.

     • Bearish: Predict the price of the asset will decrease.

3. Market Dynamics and Rewards

   • Bullish Case (Price Increases):

     • Bullish stakers earn additional LP tokens as rewards, partially sourced from Bearish stakers.

     • Correct predictions reduce impermanent loss for Bullish stakers.

     • Bearish stakers lose a portion of their LP tokens but still earn trading fees.

   • Bearish Case (Price Decreases):

     • Bearish stakers earn additional LP tokens as rewards, partially sourced from Bullish stakers.

     • Correct predictions reduce impermanent loss for Bearish stakers.

     • Bullish stakers lose a portion of their LP tokens but still earn trading fees.

When users create a liquidity position, their deposited assets (X and/or Y) are converted into liquidity pool tokens, called LpX and LpY. These tokens represent their share in the pool. If the user then decides to use their LpX tokens to enter a Liquidity Prediction Market (LPM) with a specific strategy—for example, 60% for a long position on X and 40% for a short position. The system will automatically split these tokens into two new types: LpX-long and LpX-short. This split is done proportionally based on their chosen strategy (60/40) and the current market price of X.

1. Earn Rewards

• Accurate Predictions: Correctly predicting price movements results in higher rewards and reduced impermanent loss.

• Fee Redistribution: All participants earn a share of trading fees generated by the liquidity pool, regardless of their prediction outcome.

• Dynamic Rebalancing: LP tokens are reallocated between Bullish and Bearish stakers based on market outcomes, ensuring fair reward distribution.