# Liquidity Mining (Limit Order Mining)

## ⛏️ Limit Order Mining (LOM)

Prism utilizes a specialized liquidity incentive program known as Limit Order Mining (LOM). Unlike Automated Market Makers (AMMs) that reward passive deposits, Prism’s LOM is designed for a Central Limit Order Book (CLOB). It rewards users who actively provide high-quality, two-sided limit orders that improve the trading experience.

#### Why Limit Order Mining?

Prediction markets rely on accurate probabilities, which requires tight spreads and deep liquidity. The LOM system incentivizes liquidity providers (LPs) to:

* Maintain tight spreads (orders close to the mid-price).
* Provide significant depth (size).
* Ensure consistent uptime (quoting continuously).

***

### How It Works

The LOM system operates on fixed-length bi-weekly Epochs rather than resolving rewards only when a market ends.

#### 1. Snapshotting

During an epoch, a backend service continuously monitors the order book. It takes frequent snapshots of all open orders, recording the price, size, and account associated with every bid and ask.

#### 2. The Q-Score (Liquidity Quality)

At the end of an epoch, the protocol calculates a Liquidity Quality Score (Q-Score) for each participant. This score is not a simple volume metric; it is a hierarchical calculation based on three tiers of importance:

* Tier 1 (Critical): Spread & Uptime
  * Spread Tightness: How close your order is to the market mid-price. Tighter orders earn significantly higher scores.
  * Uptime: How consistently you quote. Gaps in presence reduce your score drastically.
* Tier 2 (Important): Posted Size
  * The depth of liquidity you provide. While size is important, it is weighted less than spread to prevent whales from dominating with wide, useless orders.
* Tier 3 (Bonus): Execution
  * A mild multiplier applied if your maker orders are actually filled (traded against). This ensures the liquidity provided is "real" and useful to traders.

#### 3. Reward Allocation

Prism emits a fixed budget of **$PRSM** tokens per epoch. Rewards are distributed proportionally based on your share of the total Q-Score in a specific market.

The formula for your reward in a specific market ($$m$$) is:

$$
\text{Reward}*i = \left( \frac{Q*{i,m}}{Q\_{total,m}} \right) \times \text{Epoch Budget}\_m
$$

* $$Q\_{i,m}$$: Your specific Q-Score for the epoch.
* $$Q\_{total,m}$$: The sum of all Q-Scores from all participants in that market.
* **Epoch Budget**: The total amount of $PRSM allocated to that specific market by Governance.

***

### Incentivized Markets & LOM Control

Because market creation on Prism is permission-less, it is neither practical nor desirable to incentivize every market equally. Instead, the selection of incentivized markets is treated as a core governance function.

This structure allocates emissions efficiently and aligns incentives among stakeholders:

* Selection: The Prism DAO periodically identifies a subset of active markets eligible for LOM emissions.
* Weighting: Governance assigns each selected market an emission weight, expressed as a percentage share of the total LOM budget for the epoch. The sum of all weights must equal 100%.

> Example: If the daily LOM budget is 10,000 PRSM:
>
> * A market with a 10% weight receives 1,000 PRSM per day.
> * A market with a 4% weight receives 400 PRSM per day.
>
> This allows the community to direct liquidity toward flagship events (e.g., "US Election") while leaving niche markets unincentivized.