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).

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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.

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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.