Liquidity Strategy

Liquidity is the lifeblood of any successful exchange. use.com implements a comprehensive multi-faceted liquidity strategy combining professional market makers, liquidity mining programs, strategic partnerships, and algorithmic liquidity provision to ensure deep, consistent liquidity across all trading pairs.

Liquidity Fundamentals

What is Liquidity?

Liquidity measures how easily an asset can be bought or sold without causing significant price movement.

Key Metrics:

$Liquidity\_Score = \frac{Volume_{24h}}{Spread_{avg}} \times Depth_{orderbook}$

Components:

• Spread: Difference between best bid and ask

• Depth: Total volume available within price range

• Volume: Trading activity over time period

Example:

• BTC/USDT Pair

• 24h Volume: $500M

• Average Spread: 0.01% ($5 on $50,000)

• Order Book Depth (±0.1%): $10M

• Liquidity Score: ($500M / $5) × $10M = 1 Trillion

Importance of Liquidity

For Traders:

• Tighter spreads = Lower trading costs

• Deeper order books = Less slippage

• Higher volume = Better price discovery

• Faster execution = Reduced market impact

For the Exchange:

• Attracts more traders

• Increases trading volume

• Enhances reputation

• Creates network effects

Professional Market Maker Partnerships

Tier 1 Market Makers

use.com partners with leading institutional market makers:

Partner Criteria:

• Minimum capital: $50M

• Proven track record (3+ years)

• Multi-exchange presence

• Advanced technology infrastructure

• Regulatory compliance

Current Partners (Launch):

• 5-7 Tier 1 market makers

• Combined capital: $500M+

• Coverage: All major pairs

• Uptime commitment: 99.5%+

Market Maker Incentive Structure

Performance-Based Rebates:

Performance Tier	Uptime	Spread	Depth	Monthly Rebate
Platinum	>99%	<0.05%	>$5M	0.015% of volume
Gold	>98%	<0.08%	>$3M	0.012% of volume
Silver	>95%	<0.10%	>$1M	0.010% of volume
Bronze	>90%	<0.15%	>$500K	0.008% of volume

Rebate Calculation: $Monthly\_Rebate = Maker\_Volume \times Rebate\_Rate$

Example:

• Market Maker: Platinum Tier

• Monthly Volume: $1B

• Rebate: $1B × 0.015% = $150,000

Market Maker Requirements

Minimum Quoting Standards:

Pair Type	Min Spread	Min Depth (each side)	Uptime
BTC/USDT, ETH/USDT	0.05%	$2M	99%
Top 10 Alts	0.10%	$500K	98%
Top 50 Alts	0.20%	$100K	95%
Long-tail	0.50%	$25K	90%

Penalty Structure:

• Uptime <90%: 50% rebate reduction

• Spread violations: 25% rebate reduction per incident

• Depth violations: 10% rebate reduction per hour

Liquidity Mining Programs

Retail Liquidity Mining

Program Overview: Reward retail traders for providing liquidity through limit orders.

Reward Pool: $10M in tokens (Year 1)

Allocation Formula: $User\_Reward = \frac{User\_Maker\_Volume \times Time\_Weight}{\sum All\_Users(Maker\_Volume \times Time\_Weight)} \times Daily\_Pool$

Time Weight: Orders closer to mid-price receive higher weights.

$Time\_Weight = e^{-\lambda \times Distance\_from\_Mid}$

Where λ = 10 (decay factor)

Example:

• User places 10 BTC bid at $49,950 (mid: $50,000)

• Distance: 0.1% = 0.001

• Time Weight: e^(-10 × 0.001) = 0.99

• If order fills: Full maker volume × 0.99 weight

Pair-Specific Incentives

High-Priority Pairs (50% of pool):

• BTC/USDT: 20%

• ETH/USDT: 15%

• Top 5 Alts: 15%

Growth Pairs (30% of pool):

• New listings: 20%

• Strategic pairs: 10%

Long-tail Pairs (20% of pool):

• Distributed across 50+ pairs

Daily Reward Distribution: $Daily\_Pool = \frac{Annual\_Allocation}{365} = \frac{\$10M}{365} = \$27,397$

Staking Boost

Users who stake tokens receive enhanced liquidity mining rewards:

Staking Tier	Tokens Staked	Reward Multiplier
None	0	1.0×
Bronze	1,000 - 5,000	1.2×
Silver	5,000 - 25,000	1.5×
Gold	25,000 - 100,000	2.0×
Platinum	100,000+	3.0×

Boosted Reward Formula: $Boosted\_Reward = Base\_Reward \times Staking\_Multiplier$

Strategic Liquidity Partnerships

Exchange Partnerships

Liquidity Sharing Agreements:

• Partner with 3-5 major exchanges

• Share order book depth

• Cross-platform arbitrage opportunities

• Unified liquidity pools

Benefits:

• Instant deep liquidity at launch

• Reduced cold-start problem

• Enhanced price discovery

• Lower spreads for users

DeFi Integration

Automated Market Maker (AMM) Bridges:

• Connect to Uniswap, Curve, Balancer

• Aggregate DEX liquidity

• Hybrid CEX-DEX model

• Best execution routing

Liquidity Aggregation: $Best\_Price = \min(CEX\_Price, DEX\_Price + Bridge\_Cost)$

OTC Desk Liquidity

Large Block Trading:

• Minimum trade size: $100K

• Zero slippage execution

• Competitive pricing

• Settlement within 1 hour

OTC Pricing Model: $OTC\_Price = Mid\_Price \times (1 + Premium)$

Where Premium = 0.05% - 0.20% based on size and urgency

Algorithmic Liquidity Provision

Internal Market Making

use.com operates proprietary market making algorithms:

Algorithm Types:

1. Grid Trading Bot:

   • Places orders at regular price intervals

   • Captures spread profits

   • Rebalances automatically

$Grid\_Spacing = \frac{Price_{max} - Price_{min}}{Number\_of\_Grids}$

1. Mean Reversion Bot:

   • Identifies overbought/oversold conditions

   • Provides counter-trend liquidity

   • Uses statistical models

$Z\_Score = \frac{Price_{current} - Price_{mean}}{\sigma}$

1. Momentum Bot:

   • Follows trend direction

   • Provides liquidity in trending markets

   • Adjusts position sizing

Inventory Management

Risk Limits:

• Maximum position: 5% of daily volume

• Maximum exposure: $10M per asset

• Rebalancing frequency: Every 15 minutes

Inventory Skew Adjustment: $Bid\_Adjustment = -\alpha \times \frac{Inventory}{Target\_Inventory}$ $Ask\_Adjustment = +\alpha \times \frac{Inventory}{Target\_Inventory}$

Where α = 0.1 (adjustment factor)

Example:

• Target Inventory: 0 BTC (neutral)

• Current Inventory: +50 BTC (long)

• Skew: 50 / 100 = 0.5

• Bid Adjustment: -0.1 × 0.5 = -0.05% (lower bids)

• Ask Adjustment: +0.1 × 0.5 = +0.05% (higher asks)

Liquidity Metrics & Monitoring

Key Performance Indicators

Spread Metrics: $Average\_Spread = \frac{\sum_{t=1}^{n} (Ask_t - Bid_t)}{n \times Mid\_Price}$

Target: <0.05% for major pairs

Depth Metrics: $Depth_{±x\%} = \sum Bid\_Volume_{[Price \times (1-x\%), Price]} + \sum Ask\_Volume_{[Price, Price \times (1+x\%)]}$

Target: >$5M within ±0.1% for BTC/USDT

Volume Metrics:

• Daily volume target: $100M (Month 1) → $1B (Month 12)

• Maker/Taker ratio: 60/40 (healthy liquidity provision)

Real-Time Monitoring Dashboard

Metrics Tracked:

• Spread by pair (1-second granularity)

• Order book depth (real-time)

• Market maker uptime

• Liquidity mining participation

• Slippage analysis

Alert Thresholds:

• Spread >0.10% for major pairs: Warning

• Spread >0.20% for major pairs: Critical

• Depth <$1M for BTC/USDT: Warning

• Market maker downtime >5 minutes: Critical

Liquidity Bootstrapping Strategy

Phase 1: Pre-Launch (Months -2 to 0)

Objectives:

• Secure market maker partnerships

• Establish liquidity mining program

• Build internal market making infrastructure

Actions:

• Sign 5-7 market maker agreements

• Allocate $10M token rewards

• Deploy algorithmic trading systems

• Test on testnet

Target Metrics:

• $50M committed capital from market makers

• 1,000+ liquidity mining participants (testnet)

Phase 2: Launch (Months 1-3)

Objectives:

• Achieve competitive liquidity on major pairs

• Attract initial user base

• Establish market presence

Actions:

• Launch with 20 trading pairs

• Activate liquidity mining (2× rewards)

• Market maker rebates at maximum rates

• Aggressive marketing campaign

Target Metrics:

• BTC/USDT spread: <0.05%

• Daily volume: $50M → $200M

• 10,000+ active traders

Phase 3: Growth (Months 4-12)

Objectives:

• Expand to 100+ pairs

• Achieve top-10 exchange status by volume

• Build sustainable liquidity ecosystem

Actions:

• Add new trading pairs weekly

• Reduce liquidity mining rewards gradually

• Introduce advanced products (options, structured products)

• Strategic partnerships with DeFi protocols

Target Metrics:

• Daily volume: $500M → $2B

• 100,000+ active traders

• Top 10 exchange ranking

Phase 4: Maturity (Year 2+)

Objectives:

• Maintain market leadership

• Optimize liquidity efficiency

• Expand globally

Actions:

• Liquidity mining transitions to sustainable model

• Focus on institutional liquidity

• Cross-chain liquidity aggregation

• Regional expansion

Target Metrics:

• Daily volume: $5B+

• 1M+ active traders

• Top 5 exchange ranking

Liquidity Risk Management

Concentration Risk

Limits:

• No single market maker >30% of total liquidity

• No single pair >40% of total volume

• Geographic diversification of market makers

Technology Risk

Redundancy:

• Multiple market maker connections

• Backup liquidity sources

• Failover systems

• Circuit breakers for extreme volatility

Market Risk

Stress Testing:

• Simulate 50% price drops

• Test liquidity during flash crashes

• Evaluate market maker behavior in extremes

Contingency Plans:

• Emergency liquidity injection ($50M reserve)

• Trading halts for extreme volatility

• Coordinated market maker response

Competitive Liquidity Analysis

Liquidity Comparison

Exchange	BTC/USDT Spread	BTC/USDT Depth (±0.1%)	Daily Volume
Binance	0.01%	$50M	$2B
Coinbase	0.05%	$20M	$500M
Kraken	0.03%	$15M	$300M
use.com (Target)	0.03%	$10M	$200M (Month 3)

Competitive Advantages:

• Higher market maker rebates

• Innovative liquidity mining

• Hybrid CEX-DEX model

• Advanced algorithmic provision

Future Liquidity Innovations

Q2 2025: Cross-chain liquidity aggregation Q3 2025: AI-powered liquidity optimization Q4 2025: Decentralized liquidity pools 2026: Liquidity-as-a-Service for other exchanges

Conclusion

use.com's comprehensive liquidity strategy combines professional market makers, retail participation through liquidity mining, strategic partnerships, and advanced algorithms to ensure deep, consistent liquidity. This multi-layered approach creates a robust liquidity ecosystem that benefits all participants while positioning use.com as a leading exchange in the competitive landscape.

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Related Sections:

• Matching Engine & Order Book Design

• Trading Products Overview

• Token Utility Overview