✨DLIA Liquidity Algorithm

Conventional centralized order book frameworks extensively utilize market makers to guarantee substantial liquidity. Nonetheless, this methodology is inherently centralized, granting market makers the authority to control the market's liquidity. In the event that market makers withdraw due to lack of profitability or other factors, the market could potentially be stripped of all liquidity. To counteract this, we have engineered a decentralized liquidity incentive algorithm to ensure sustained liquidity within the order book.

This algorithm can be referred to as the "Dynamic Liquidity Incentive Algorithm (DLIA)". Here are the specific rules of the algorithm:

1. Defining Active Liquidity: We define active liquidity as the orders within 10 grids above and below the market price, i.e., from Buy1 to Buy10, and Sell1 to Sell10.

2. Assessing Active Liquidity: We will use a dynamic threshold to determine whether active liquidity is sufficient. This threshold T can be adjusted dynamically based on market needs, with each adjustment being announced 24 hours in advance.

3. Dynamically Adjusting Order Rewards:

"ActiveLiquidity" represents the current level of active liquidity, which is calculated according to T.

The reward coefficient ranges from 1 to 5. When active liquidity is low (closer to 0.1), the reward coefficient is closer to 5, providing a higher reward. As active liquidity increases towards 2, the reward coefficient gradually decreases towards 1, reducing the reward.

The objective of this algorithm is to balance the level of active liquidity in the system. By adjusting the reward based on the level of active liquidity, it encourages participants to maintain a moderate level of active liquidity, which can help to ensure the stability and efficiency of the system. The active liquidity range of interest is from 0.1 to 2.