LP Max Spread Research

The liquidity provider rewards formula implements a maximum spread for trades to be included in the calculation. When a bid or ask is above the maximum spread, the order is not included in the scoring for rewards. This incentivizes liquidity providers to place orders closer to the mid price, improving the liquidity of dYdX markets.

Maximum spreads are currently set at: 20 basis points for BTC-USD and ETH-USD, and 40 basis points for all other markets.

We are looking for experienced researchers to explore optimal MaxSpread parameters. The research should make use of market data, peer analysis, and theory to provide the community with improved parameters that fairly reward liquidity providers for competitive spreads. The deliverable may include a governance proposal based on the results.