Understanding Fees and Rewards

Understanding Fees and Rewards

This page explains the fee structure and reward system for liquidity providers (LPs) on Zeitgeist. Understanding how fees are calculated and how rewards are distributed is crucial for maximizing your potential earnings.

I. Breakdown of the Fee Structure

Zeitgeist uses a dynamic trading fee system, meaning the fee percentage is not fixed but adjusts based on various factors. This helps to incentivize liquidity provision, discourage manipulation, and compensate LPs for risk.

Components of the Fee:

1. Base Fee:

   • This is the starting fee percentage (e.g., 0.3%).

   • The base fee can be set globally for the platform (by TIME token governance) or potentially customized for individual markets.

   • The value of Base Fee is determined by Time Token Holders via voting.

2. Dynamic Adjustments (Multipliers): The base fee is multiplied by several factors to arrive at the final trading fee:

   • Time to Expiration Multiplier:

     • As the narrative's expiration date approaches, the fee increases. This is because the risk for LPs generally increases as the outcome becomes clearer.

     • The increase can follow different functions (linear, exponential, or stepwise). The specific function and parameters are determined by governance.

     • Example (Linear): Time Multiplier = 1 + (Time Remaining / Total Time) * Time_Factor. Time_Factor is a governance-controlled parameter.

     • Formula: Time_Multiplier = max(1, 1 + (Time_Factor * (1 - (Current_Time - Start_Time) / (End_Time - Start_Time))))

     • This also make sure the multiplier has minimum value of 1.

   • Information Content Multiplier:

     • This is a key dynamic component, driven by Zeitgeist's AI agents.

     • The agents analyze Twitter data (sentiment, volume, influencer activity) to generate an "Information Score" for each narrative.

     • Higher Information Score = higher fee multiplier. This reflects increased uncertainty, volatility, or potential manipulation attempts.

     • The precise formula for the Information Score is detailed in the Appendix (and is subject to governance).

     • Information_Multiplier = max(1, 1 + (Information_Score * Information_Factor)).

   • Volatility Multiplier:

     • This multiplier is based on the recent price volatility of the YES/NO shares.

     • Higher volatility = higher fee multiplier. This compensates LPs for the increased risk of impermanent loss.

     • Volatility could be calculated using a rolling standard deviation of price changes over a specific period (e.g., the last 24 hours).

     • Formula: Volatility_Multiplier = max(1, 1 + (Volatility_Factor * Historical_Volatility))

3. Fee Discounts (if applicable):

   • TIME Token Holding: Users who hold (or stake) a certain amount of TIME tokens may receive discounts on trading fees.

   • Volume-Based Discounts: High-volume traders may receive discounts.

   • Agent Token Holding Users who holds the agent tokens may receive discount for related narratives.

4. Final Fee Calculation:

   The final trading fee is calculated as follows:

   Final Fee = Base Fee * Time Multiplier * Information Multiplier * Volatility Multiplier * (1 - Discount)

   Example:

   • Base Fee: 0.3%

   • Time Multiplier: 1.5 (market is approaching expiration)

   • Information Multiplier: 2.0 (high information score due to a new development)

   • Volatility Multiplier: 1.2

   • Discount: 0.1 (user holds enough TIME tokens for a 10% discount)

   Final Fee = 0.003 * 1.5 * 2.0 * 1.2 * (1 - 0.1) = 0.00972 (0.972%)

   This means the user would pay a 0.972% fee on their trade.

5. Fee Distribution:

   • A significant portion of the trading fees goes to the liquidity providers (LPs) who provided the liquidity for the executed trade. The distribution is proportional to their contribution to the active liquidity (and adjusted for TDLB).

   • The remaining portion of the fees goes to the Zeitgeist platform treasury.

II. Outcome-Specific Staking Rewards (OSSR)

In addition to trading fees, LPs on Zeitgeist can earn staking rewards in TIME tokens through the OSSR system. This rewards LPs for providing accurate liquidity.

Components of the OSSR Calculation:

1. Base Accuracy Score (Brier Score):

   • The foundation of the OSSR is the Brier Score, a common measure of prediction accuracy.

   • Brier Score = (Predicted Probability - Actual Outcome)^2

   • Lower Brier Score = better accuracy. A perfect prediction has a Brier Score of 0.

   • The "Predicted Probability" is derived from the price of the bin(s) where the LP provided liquidity.

   • The Actual Outcome is 0 or 1.

2. Time-Weighted Accuracy:

   • The Brier Score is multiplied by a time-weighting factor to reward LPs who provided liquidity earlier.

   • Time-Weighted Brier Score = Brier Score * (1 + (Time to Expiration / Total Market Duration) * Time_Weight_Factor)

   • Time_Weight_Factor is a governance-controlled parameter.

3. Confidence-Weighted Accuracy (Optional):

   • If LPs choose to provide a "confidence score" (1-10) when providing liquidity, this score can modify their OSSR.

   • Higher confidence, if correct, improves the score. Higher confidence, if incorrect, worsens the score.

   • The precise formula for this adjustment needs careful calibration to avoid excessive swings and is subject to governance. (See previous responses for a conceptual example).

4. Narrative Relevance Bonus (Optional):

   • LPs who actively engage with the relevant Twitter community (and have connected their Twitter accounts with explicit consent) can receive a bonus to their OSSR score.

   • This bonus is based on the "Narrative Relevance Score," which measures their engagement with the narrative.

   • The precise formula to be provided in the appendix.

5. Reward Distribution:

   • Rewards are typically handled via a pool-based method.

Final OSSR Score Formula (Conceptual):

Final OSSR Score = (Time-Weighted Brier Score * Confidence Modifier) * (1 + Narrative Relevance Bonus)

The lower the Final OSSR Score, the higher the TIME token reward.

Example:

• LP1 provides 100 Yes shares liquidity, price at 0.6, 30 days before the Narrative closes.

• LP2 provides 100 Yes shares liquidity, price at 0.75, 15 days before the Narrative closes.

• Final Outcome = 1 (Yes wins)

• Brier score of LP1 = (0.6 - 1)^2 = 0.16

• Brier score of LP2 = (0.75-1)^2 = 0.0625

• Let assume Time_Weight_Factor = 0.5.

The exact reward amounts and distribution mechanisms are subject to governance and may change over time. The platform will provide clear and up-to-date information on the current OSSR parameters.

By understanding both the dynamic fee structure and the OSSR system, liquidity providers can develop strategies to maximize their potential earnings on Zeitgeist.