Market Liquidity

For trading to happen in a Predictum market, there must be liquidity available. Liquidity ensures that traders can buy and sell outcome shares at any time before the market closes.

Here are the key points:

• Every market must have liquidity before trading can begin.

• The market creator must provide an initial amount of liquidity when creating a market.

• Any user can add or remove liquidity at any point until the market closes.

• Participants who supply liquidity are called Liquidity Providers (LPs).

• LPs earn a share of the trading fees collected from that market, proportional to the percentage of the liquidity pool they own.

Why Liquidity Matters

Predictum uses an Automated Market Maker (AMM), similar to those in decentralized exchanges, to set prices and match trades. In practice, traders are transacting directly against the liquidity pool rather than with another specific trader.

More liquidity means:

• Smaller price impact when large trades happen.

• More accurate pricing because prices represent market sentiment more precisely.

• Better trading experience for both casual traders and professional forecasters.

If a market has low liquidity, large trades can shift prices significantly, which may make the market less attractive for participants and reduce forecasting accuracy.

Rewards for Liquidity Providers

LPs are compensated for the risk of supplying liquidity. They earn a portion of the market’s trading fees, proportional to their share of the liquidity pool.

For example: If a market collects $100 in trading fees and you own 10% of the liquidity pool, you will receive $10.

Providing liquidity can be profitable, but it also carries exposure risk — the value of your position may fluctuate based on market movements. Always assess the potential risks before becoming a liquidity provider.