Liquidity Mining FAQs¶
Please review the Liquidity Mining Policy for the full disclaimer.
What is liquidity mining?¶
Liquidity mining is a community-based, data-driven approach to market making, in which a token issuer or exchange can reward a pool of miners to provide liquidity for a specified token.
You earn rewards by running a market making bot that maintains orders on exchange order books. How much reward you earn depends on:
- The amount of your orders
- The spread (distance to the mid price) of your orders
- How long you maintain your orders on the order book
For more information, please read the whitepaper.
Why is it called "liquidity mining"?¶
Liquidity mining is similar to Bitcoin mining in that miners run open source software on their own computers and use their own scarce resources (inventory of crypto assets).
In addition, a collective pool of participants are working together for a common goal, providing liquidity for a specific token and exchange. In return, miners are paid out rewards according to transparent, algorithmically defined rules.
How do I interpret the numbers in Hummingbot Miners?¶
Active Bots is the total number of market making bots currently running/
Liquidity is the total eligible open order volume across all Active Bots currently.
Yield/Day shows you how much you can earn per day currently. To calculate Yield/Day, divide the daily reward (Reward/Day) by Liquidity.
The Yield/Day is solely based on liquidity rewards and does not take into account trades executed.
Liquidity mining yields do not include profits or losses from trading
The published Yield/Day metrics only include reward payments versus order volumes. They do not capture the individual miner's profit or loss on the underlying strategy or any transaction fees (if any) that generated the orders created. As a result, liquidity mining yields are not an indication of a miner's overall portfolio return; miners should take into consideration overall economics, and not just mining return, when deciding on participating in liquidity mining campaigns.
What strategies can a liquidity miner use?¶
Liquidity mining rewards are determined based on limit orders created ("maker" orders). Currently, the Hummingbot client has two strategies that create maker orders:
Using either of these two strategies for trading will qualify you to participate in liquidity mining and earn rewards.
What risks does a liquidity miner bear?¶
Like any trading strategy, market making includes risk. One of the primary risks is inventory risk, the risk of negative changes in inventory value as a result of market making. For instance, if prices drop significantly in a short time period and a market maker accumulates a large position in the asset due to continual fills of their market maker's buy orders, their overall inventory value may be lower.
While the open source Hummingbot client includes features that help users better manage inventory risk and other risks, users are solely responsible for bearing these risks when using the software.
The published liquidity mining returns illustrate the return from liquidity rewards proportional to the value of the inventory committed to maintain orders. These figures do not take into account trading-related profits and losses. The return figures may also fluctuate based on relative changes in the value of the base tokens, quote tokens, and the tokens used for the liquidity mining payments.
How do you measure liquidity?¶
We believe that slippage is the optimal metric to quantify liquidity, as opposed to filled order volume, a measure widely used by the market. Slippage refers to the difference between the observed mid-market price and the actual executed price for a trade of a given size. Calculating slippage factors in order book depth and prices at different depths, which better captures the friction and efficiency of actually trading that asset. Deep, liquid order books have low slippage, while thin, illiquid order books have high slippage.
We believe slippage is a more robust indicator of liquidity than trading volume. As an ex-ante metric, slippage measures information used by traders before they trade to decide whether to execute the trade and in which venue to execute it. In contrast, volume is an ex-post metric and can be easily manipulated.
How are liquidity mining rewards calculated?¶
In order to make economic sense for a market maker, the market maker’s compensation must correlate with increased levels of risk. There are three main parameters that we use in liquidity mining to determine market maker compensation: (1) time: placing orders in the order book consistently over time, (2) spreads, and (3) order sizes.
In liquidity mining, market makers accumulate more rewards by consistently placing orders over time and earn higher rewards by placing orders with tighter spreads and with larger sizes. The real-time reward information will be displayed in the real-time Hummingbot Miner dashboard.
For more details on the calculation, please read Demystifying Liquidity Mining Rewards.
Liquidity mining return is a historic metric and not a guarantee of future return.
The liquidity mining return displayed on the Hummingbot Miner app is calculated from the most recently collected order book information data. The actual return may vary depending on the actual orders submitted in the specific snapshot in which orders were placed.
For more details on the calculation, please read Demystifying Liquidity Mining Rewards.
How are the reward allocated for each order book snapshot?¶
In each weekly epoch, the lump-sum weekly reward is distributed equally across each minute within that epoch. For each minute, a random snapshot is taken from within that minute to be used for calculating reward allocations.
For each snapshot, half the reward is allocated to the bid-side of the order book, and the other half is allocated to the ask side of the order book. We mandate this 50/50 split in order to deter participants from using our system to manipulate price in one direction or another. If there are no eligible orders submitted for a specific snapshot, the amount of rewards allocated for that snapshot will roll over and be added to the reward amount for the subsequent snapshot.
Do my earnings in one market affect other markets?¶
No, reward allocations for each market are calculated independently. Each payment distribution will be based on qualifying activity in the immediately preceding weekly epoch, and not on prior epochs.
How do you verify the liquidity that I provide?¶
In order to accurately measure liquidity and allocate rewards, miners need to provide a working read-only API key for each exchange where they want to earn rewards. Our data infrastructure uses read-only API keys to collect and aggregate order data for each miner.
In addition, we run proprietary algorithms in order to attempt any prohibited actions such as wash trading and spoofing. While exploitative practices can be difficult to identify given the adversarial nature of the market, we believe that the combination of our focus on compliance, granular data feeds, and machine learning-based algorithms may deter and detect bad actors.
Why do I need an Ethereum wallet to sign up?¶
The Hummingbot Miners app uses your Ethereum wallet address to:
- assign you a unique user ID. The Hummingbot miners app associates your configurations (e.g. email address, API configurations), as well as activity. This allows the miners app to display your user-specific information such as rewards earned and payout history.
- send you token payouts: mining rewards payouts will be sent to this address
Wallet not used for trading
Since it is only used for the purposes mentioned above, you do not need deposit assets into or trade using this wallet.
How do I see how my rewards are calculated?¶
The Snapshot view in Hummingbot Miner contains a breakdown of how the per-minute reward for a single market is allocated.
To navigate to it, go the Markets page and click on a row in the Available Markets table to access details about that particular Market. Then, click on a row in the Snapshots table to see the reward breakdown for that snapshot.
Alternatively, you can also reach it from the Activity page. Click on a row in the Rewards Earned table to see reward detail for each Market. Then, click on a specific Market row to see the Snapshot view.
My bot is running but I'm not earning any rewards!¶
It may takes up to 1 hour for our system to start tracking newly created bots and crediting them with rewards.
Check the following if:
- You are not running Hummingbot in paper trading mode, which doesn't place real orders.
- Your bot is actually placing orders on the exchange. You should be able to see them in the exchange website. Make sure you're running token pair on our active campaigns.
- If you are running Hummingbot locally on Mac or Windows computer, your machine didn't go to sleep or lost internet connection which prevents Hummingbot from maintaining orders.
If these 3 reasons are not the cause, you can email a CSV export of your Binance order history for a particular market to email@example.com. Make sure to used or include the email address registered for liquidity mining.
We can only provide you with our system's data and cannot credit users for past rewards.
When are liquidity mining rewards paid out?¶
Each weekly epoch runs begins and ends at Tuesday 12am UTC. Rewards are distributed to each participant's registered Ethereum address 3 calendar days after the end of each epoch.
How do I verify my payouts?¶
Your weekly payout email receipts contains links to the blockchain transaction confirmations. You can find these transaction confirmation links if you click on the Rewards Paid table in the Activity page.
I don't see my earnings on my metamask and on etherscan link from my email weekly reward.¶
Click the etherscan link provided on email and navigate to
Erc20 Token Txns as shown on image below, Or you may just need to add USDC token to MetaMask so you can view them. Please follow the instructions in this URL: adding ERC20 Tokens
Do you store data that you collect with my read-only API keys?¶
At launch, we store individual orders and trades in order to isolate and prevent potential attempts to manipulate or abuse the system by malicious liquidity miners. After the system is more mature, we will adjust the data collection process so that we only store aggregate data and do not store individual orders and trades. We never share individual order and trade data with third parties.
How is Hummingbot compensated for liquidity mining programs?¶
In return for administering liquidity mining programs, collecting the data necessary to verify the trading activity of participants, and automating the payout process, we receive compensation from our Liquidity Mining partners and customers.
Can I earn rewards in multiple markets simultaneously?¶
Yes, you can run different instances of Hummingbot or your own software in order to earn rewards in multiple markets simultaneously.
Do I need to use the Hummingbot client to participate in liquidity mining?¶
No; if you already have your own trading bots and strategies, you can still participate in liquidity mining by registering at Hummingbot Miner and adding your exchange read-only API key.
For the general pool of users who don't have their own trading bots, we created Hummingbot as a way to provide them access to quant/algo strategies and the ability to market make.