Market Making
VDEX utilizes an orderbook, as opposed to an auto-market maker. This has several distinct advantages including higher capital efficiency, protection against MEV, better order execution, and less price impact. Orderbooks are inarguably better for traders. For the exchange, however, the process is not so simple. Ensuring liquidating requires active traders, called market makers, to create resting orders so that market orders can get filled with sub-millisecond finality.
Because of this VDEX actively encourages traders to submit resting orders (limit orders) into the orderbook. Not only are fees not charged to the trader, but a rebate is given meaning that VDEX will directly pay users for filling taker orders. These rates range from .001% of volume to 0.01% of volume, or between $10 and $100 per $1M volume.
Here's how a trader could earn $100 per day with just a $5,000 account through market making:
Trader submits a 20x leverage bid or ask to fill a $100,000 position size.
Trader fills 10 orders per day, likely 5 bids and 5 asks to reach $1,000,000 daily volume.
This sustainable profit source does not include the PNL from market making strategies themselves. Market makers list bids lower than the current price of an asset and asks higher. This difference is known as the bid-ask price. If a market maker's bid and ask are both filled, they will have purchased an asset from a seller at lower price than the price that they sold it to the buyer. This difference is pure profit, and ranges from a few cents to a few dollars.
While market making is a relatively safe form of trading, it is not risk-free. Market makers often hold positions as trader sentiment shifts towards buying or selling. If their held assets depreciate before they can find exits, they could be left with realized losses greater than their spreads.
Anyone can become a market maker at VDEX! Users will automatically be paid according to the rate prescribed in the fee schedule. Market makers will have the chance to earn access to VDEX's APIs for free after their first $1M in volume. Institutional market makers can also apply to the Overdrive campaign for liquidity allocation and higher rebates.
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