Enhancing Akash Network Market Liquidity and Depth

[lechenghiskhan]

Summary, Background, Motivation

This proposal seeks to enhance Akash Network’s market liquidity and depth across major trading pairs on key exchanges. We ask the Community Pool for 3mm AKT and will work with one or more professional market makers (MMs). These engagements will likely be structured as loan-call options but can include more novel strategies.

Every aspect of Akash — from setting the roadmap to building the source code — is done openly and does not rely on any individual company or group.

Market making, however, has been different and depends on Overclock Labs. As of February 3, 2025, Overclock Labs has deployed 3.5 million AKT over the last two years to support Akash Network's markets across its primary exchanges. This needs to change to remove single points of failure, as true decentralization mandates that efforts to build the network should not come from any single company but rather from the community with utmost transparency. Market making, which involves building liquidity, is no exception.

This proposal aims to increase liquidity and depth by approximately 2x within the next 3 months. 2024 was a milestone year for Akash Network in terms of fundamental growth and our markets must also mature to keep pace. Enhanced liquidity and depth will enable larger positions to be bought and sold with reduced impact on AKT markets. A deeper, more liquid market will likely facilitate greater institutional and retail participation and adoption.

The additional capital will roughly double the depth and liquidity across Akash Network’s primary exchanges and pairs for 24 months. If successful, this will open the door to consistently adding more market support for Akash Network via open governance.

High-Level Details

• Amount Requested: 3.5mm AKT from the community pool
• Market-making structure(s): Loan-call option model
• Duration: 12-24 months. Depending on the structure and strategy, durations can vary. A novel strategy, for example, might call for shorter durations due to the strategy’s constraints.

Example Loan Option

The market maker receives a 3mm loan in AKT tokens. AKT’s spot price is $3.00.
The tokens are split into two tranches with different price triggers (strikes). The duration of the agreement is 24 months.

Loan Amount: 3mm AKT tokens

Tranche 1: 1.5mm tokens

• Strike: $3.75 (125% of $3)
• Size: 1.5mm AKT
• Expiration: 12 months after contract execution
• If the price hits or exceeds $3.75 in 12 months, the MM can keep the tokens by exercising the option to Tranche 1 and pay $5.625mm ($4.50 x 1.5mm AKT) in stables back to the community pool
• Below $3.75, the MM returns the original amount of AKT

Tranche 2: 1.5mm tokens

• Strike: $4.50 (150% of $3)
• Size: 1.5mm AKT
• Expiration: 24 months after contract execution
• If the price hits or exceeds $4.50 in 24 months, the MM can keep the tokens by exercising the option to Tranche 2 and pay $6.750mm in stables back to the community pool
• Below $5.25, the MM returns the original amount of AKT

Simple Outcomes at the end of 24 months:

• Price under $3.75: Community Pool receives all 3mm tokens back
• Price between $3.75 and $5.24: Community Pool receives 1.5mm tokens + $5.625mm in USDT or USDC
• Price over $5.25: Community Pool receives $12.375mm in USDT or USDC

Market Maker Obligations:

1. Maintain minimum depth targets across specified pairs
2. 99%+ uptime
3. Consistent reporting dashboards
4. Minimum spread requirements

While this is just an example of what a typical loan call option agreement with a market maker could look like, the final details will be shared to the extent that is legally allowed.

[rodri-r]

You're an expert on this, so I will trust you and support you!

[brewsterdrinkwater]

This discussion was brought up and the group talked about it during the sig-economics meeting February 5th, 2025.

Notes and Transcripts will be available soon. Feel free to view the video recording from the meeting here.