Liquidity Provider Rewards
Overview of the Liquidity Provider rewards Program.
7.5% of the initial token supply (
75,000,000 $DYDX
) will be distributed to liquidity providers based on formulas that reward a combination of maker volume, uptime, twosided depth, bidask spreads, and the number of markets supported.Objectives
 Improve twosided liquidity and programmatically reward liquidity providers.
To incentivize market liquidity, $DYDX will be distributed to liquidity providers based on formulas that reward participation in markets, maker volume, twosided depth, spread (vs. midmarket), and uptime on dYdX’s Layer 2 Protocol. Any Ethereum address can earn these rewards, subject to a minimum maker volume threshold of 0.25% of maker volume in the preceding epoch. $DYDX will be distributed on a 28day epoch basis over five years and are not subject to any vesting or lockups. 1,150,685 $DYDX will be distributed per epoch.
The following functions are used to compute how much $DYDX should be rewarded to each liquidity provider per epoch. In DIP 15, the dYdX community voted to revise the LP rewards formula by splitting the functions for BTC/ETH markets and non BTC/ETH markets. In DIP 19, the dYdX community voted to reallocate the 0.05 $stkDYDX weight to MakerVolume.
Overall, the weighting of volume in the functions was increased in all markets. The amount of $DYDX earned is determined by the relative share of each participant’s
$Q_{FINAL}$
($Q_{BTC}$
+$Q_{ETH}$
+$Q_{non BTC/ETH}$
).Orders below a certain minimum depth (size) (
$MinDepth$
) per market are excluded, and orders over a certain maximum spread (midmarket spread) ($MaxSpread$
) market are excluded as well.Liquidity provider performance is monitored and calculated on a minutebyminute basis (using randomized sampling) and aggregated into a
$Q_{SCORE}$
for a given market. Given minutebyminute sampling, each epoch has 28 days * 24 hours * 60 minutes of data points—40,320 data points per epoch in total.Liquidity providers earn monthly rewards based on their relative
$Q_{FINAL}$
share per epoch.The above formula is broken out into stepbystep calculations below for detail:
Maker Volume  Total maker volume for the Epoch. 
 Assume a liquidity provider has multiple open bid orders (1 BTC at $29,900, 5 BTC at $29,850, 10 BTC at $29,500) on the BTCUSD order book and BTC is currently at $30,000 (based on midmarket). Assume MinDepth is $5000 and MaxSpread vs. midmarket is $200, or 67 Basis Points ($200/30000). A BP is onehundredth of one percent.
$Q_{BID}$ is calculated every minute using random sampling.

 Assume a liquidity provider has multiple open ask orders (0.1 BTC at $30,100, 5 BTC at $30,150, 10 BTC at $30,175) on the BTCUSD order book and BTC is currently trading at $30,000 (based on midmarket). Assume MinDepth is $5000 and MaxSpread vs. midmarket is $200, or 67 Basis Points ($200/30000). A BP is onehundredth of one percent. $Q_{ASK}$ is calculated every minute at a random interval. 
 Rewards 2sided liquidity by taking the minimum of $Q_{BID}$ and $Q_{ASK}$ .
Calculated every minute. 
 $Q_{EPOCH}$ is the sum of all $Q_{MIN}$ in a given epoch. 
 $Uptime_{EPOCH}$ is the time in an epoch that a given market maker was live and quoting on both the bid and ask sides with order sizes greater than stated order minimum (noted below by market) and spreads smaller than stated maximum spread (noted below by market). 
 $Q_{FINAL}$ normalizes $Q_{EPOCH}$ to account for uptime 
Each market will have its own rewards pool that will be weighted differently. In DIP 15, the dYdX community voted to reduce the allocation of total rewards in BTCUSD and ETHUSDC to 10% each. The set of weights applied to each market is as follows:
Market  % Allocation of Total Rewards Pool 

BTCUSD  10% 
ETHUSD  10% 
Other perpetual markets  
All liquidity providers who have achieved a minimum of 0.25% of maker volume on the dYdX Layer 2 Protocol in the prior epoch are eligible to receive $DYDX as rewards in a given epoch.
The dYdX Layer 2 Protocol is not available to liquidity providers in the United States or Restricted Territories, as defined in dYdX Trading Inc.’s Terms of Use.
In a given epoch, liquidity providers earn yield based on their relative
$Q_{SCORE}$
in a given pair’s market. Each pair has its own relative reward amount set by governance. The expected amount of DYDX earned is displayed in the LP Rewards Dashboard and can be determined based on the number of liquidity providers involved, the relative $Q_{SCORE}$
, and the amount of reward available for a given pair.$DYDX tokens rewarded via the Liquidity Provider Rewards will become claimable and transferable once the initial transfer restriction period is lifted.
Starting in Epoch 1, $DYDX tokens rewarded via the Liquidity Provider Rewards will become claimable
7 days
(Waiting Period) after the end of each epoch.Twosided depth
A twosided liquidity provider is a firm or individual who actively quotes twosided markets on the dYdX Layer 2 Protocol, providing bids and asks for a given market. They provide liquidity to the protocol overall.
For instance, a liquidity provider in the BTCUSD market may provide a quote of $30,000$30,100, 10x50. This means that they bid (they will buy) 10 BTC for $30,000 and also offer (they will sell) 50 BTC at $30,100. Other market participants may then buy (lift the offer) from the liquidity provider at $30,100 or sell to them (hit the bid) at $30,000.
Liquidity providers are assessed on their ability to provide both bids and asks on a given market. Liquidity providers who only quote on 1side (either just bids or asks) are excluded from receiving rewards due to the min() function.
Midmarket spread
One common measure of liquidity is the bidask spread: the spread between the highest bid (order to buy) price and the lowest ask (order to sell) price in a market. The difference between the bid and the ask, the spread, is the principal transaction cost of trading (outside commissions), and it is collected by the liquidity provider by processing orders at the bid and ask prices. The spread measures the cost of transacting immediately to a user.
The midmarket spread specifically takes the midpoint of the market. With this formula, orders below the MinDepth amount for each market are excluded also.
For instance, if a liquidity provider’s bid price for BTCUSD is $30,000 and the ask price is $30,100, then the bidask spread is $100. The midmarket price is $30,050, and the midmarket spread is $50.
Uptime
Liquidity provider uptime is critical for markets, especially in periods of high volatility. By applying an exponent of 5 to
$Uptime_{epoch}$
as an input to the $Q_{FINAL}$
, the rewards are skewed towards liquidity providers who maintain 2sided liquidity constantly. In other words, a liquidity provider who provides uptime 99% of the time is exponentially more valuable than a liquidity provider who provides 90% uptime.Uptime is defined as the percentage of time orders are in a given market providing liquidity on a minutebyminute basis (with randomized sampling). Uptime excludes periods of time when outages exist on the dYdX Layer 2 Protocol itself. There may be edge cases where the exchange is slow or not accepting orders (but is not an outage)—in which case the above would not apply (but that would be considered a bug and all liquidity providers would be similarly affected, as with outages).
No
$Q_{BID}$
or $Q_{ASK}$
will be generated when the spread is above a given market’s $MaxSpread$
.The initial Max Spreads are as follows:
Market  Max Spread vs MidMarket (Bid and Ask) 

BTCUSD  20 bps 
ETHUSD  20 bps 
Other perpetual markets  40 bps 
No
$Q_{BID}$
or $Q_{ASK}$
will be generated when the size is below a given market’s $MinDepth$
.The initial Min Depths are as follows:
Market  Min Depth (Bid and Ask) 
BTCUSD  $5000 
ETHUSD  $5000 
Other perpetual markets  $1000 
Last modified 3mo ago