Learn how to earn Polymarket LP rewards step by step

Author: Gans

A while ago, @RicardoPolyGuy mentioned in his "Predictions Tavern" livestream that LP rewards might become an indicator for Polymarket airdrops. Many friends are interested in this but don't know where to start. The difficulty lies in choosing the right order book market. The biggest purpose of this article is to solve this problem, to teach people how to fish, so that novice users can directly start earning Polymarket wages themselves.

Maker vs Taker

Before you begin, you need to understand a few concepts:

Polymarket supports limit order trading, where buy orders ( Bids ) and sell orders (Asks) constitute the order book. Market makers profit from the price difference by placing orders on both the buy and sell sides simultaneously. With an order book, both placing and taking orders become possible.

Maker vs Taker

• Market Maker: Place limit orders and wait for them to be filled. Some markets offer LP rewards for orders placed within a range. Crypto, NCAAB, and Serie A leagues offer commission rebates after orders are filled. See: Maker Rebates Program for details.
• Taker: A trade is executed directly at the market price, taking an existing order. Therefore, some markets require a transaction fee. For details on transaction fees, see: Understanding trading fees on Polymarket.

Polymarket's LP reward mechanism distributes rewards to eligible users daily. The reward amount is related to factors such as your order volume, order duration, and order price . However, the minimum amount distributed is 1U. If you receive less than 1U in rewards each day, then all your efforts are in vain.

Find a suitable market for market making

Not all markets offer LP rewards, and not all markets with LP rewards are worthwhile for market making. Below are my selection criteria, which you can adjust according to your own habits and preferences:

Market characteristics suitable for market making:

• There is a certain order book depth
• Market settlement time is relatively long (more than 2 weeks until settlement).
• Avoid highly volatile markets
• LP reward greater than 20U
• The level of competition is moderate or low.

Having the rules, how do we find them? It involves three steps.

Step 1: Screening for competition

On the surface, the lower the competition, the easier it is to make money. Those with large amounts of capital can ignore this. But too little competition is also not good. You get what you pay for, so you should choose something moderate.

Step 2: Check the reward amount

Find regions with moderate competition, and then look at the reward amount, which is the total daily reward distribution for that market. Generally speaking, only markets with a reward pool of $20 or more are worth participating in; in smaller markets, even if you capture a large share, your absolute returns will be very limited.

Step 3: Check the thickness of pending orders

This step directly determines how much money you will receive.

Rewards are distributed based on the proportion of your pending orders to the total pending orders. If the order book is already full of large orders, your reward will be severely diluted if you invest a small amount of money.

Working on a temporary basis

Once you find a suitable market, you can place orders within the specified price range. Valid orders will be highlighted with a blue circle to indicate that they have been effective; if there is no highlight, it means that the order is outside the range.

Note that if the price on either side is below 10 cents, you must place orders on both sides for them to be valid. Some say that placing orders on both sides is three times more efficient than placing orders on one side, but I haven't found a specific calculation method yet.

Finally, it's not enough to just place an order and forget about it. You need to check from time to time to see if it's been filled. If it's filled, there will be no reward, and you might end up with a bunch of worthless tokens. So, you should sell or merge filled orders as soon as possible. If the market is fluctuating too much, you need to decide whether you need to switch to another market to place orders.

The above is for experience sharing only and may be wrong. Please correct me if I am wrong. It should not be taken as financial advice. Market making is risky, and you are responsible for your own profits and losses.