Great question @caocao! As you’ve identified a key problem for decentralised exchanges is the acquisition and incentivisation of liquidity provision. The entrenched model used by centralised marketplaces is to establish business partnerships with market makers and negotiate obligations and rewards, governed by business contracts. This is an infeasible model in a psuedonymous, decentralised marketplace where no centralised ‘owner’ of the marketplace exists to source and establish such agreements. Moreover, such a model suffers from misalignment between market owners and liquidity providers and isn’t scalable beyond the central owner’s business development capacities.
As @david refers to, we’ve put quite a lot of thought into the best way to design Vega so that creation of new markets is easy and that markets launched are liquid enough to be useful and safe to trade. The incentive model rewards those who launch markets (or join as market makers early) at a higher level than those who join later. And importantly, like a centralised operator, these liquidity providers receive a portion of the total fees generated by the market. This is a very different revenue model to traditional market making and means that they are incentivised to weather periods of higher market risk for the larger overall return they are receiving.
The trading fees are dynamic in nature, responding to how much liquidity is needed to support the market. This allows the market to “attract” market makers to it when the market has a higher amount of open, margined positions. Conversely, trading fees become much cheaper when the market is liquid and well supported.
If a market has insufficient market making support, it will be suspended until the market has attracted new market makers to support it. This means that any markets on Vega that is open, has, by definition, a good level of liquidity.
We will soon be publishing some exciting papers about how the protocol will facilitate the dynamic valuation of liquidity on a market. This is an area of ongoing research for us and one we’re deeply passionate about!