| id | Title | Status | Author | Description | Discussions to | Created |
|---|---|---|---|---|---|---|
| TIP-127 | Reduce min_spread that ParlayAMM pays to SportsAMM | Draft | Danijel (@danthales) | Reduce min_spread fee that ParlayAMM pays to SportsAMM | https://discord.gg/thales | 2023-2-17 |
Reduce min_spread that ParlayAMM pays to SportsAMM from 1% to 0.01%
ParlayAMM guarantees solvency for each ticket by purchasing individual positions that make a parlay from the underlying SportsAMM. In doing so it doesnt pay any SafeBox fee as it generates profits from the SportsAMM just due to skew impact and it charges its own SafeBox fee to end users.
As ParlayAMM and SportsAMM use different liqudity pools, we always wanted to consider ParlayAMM as a standalone product that aims to be profitable on its own.
This was working quite well with a maximum of 4 positions, and then to some extent with 6 positions, but when we moved to 8 positions, reduced min buy_in and increased max payout, there is notable and expected trend of ParlayAMM PnL going down. The reason for this is that when ParlayAMM needs to collaterize an 8-leg parlay, it actually pays much more to the SportsAMM on individual spread+skew impact per each position in a parlay than it ultimately charges the user.
For ballpark idea, if a user pays $5 for a 40x max parlay, the ParlayAMM spends $20 just on the multiplied spread, so the numbers work against it in the long run.
To not cause a missunderstanding, Parlays are very profitable for Overtime, however those profits currently mostly go to SportsAMM. As long as both AMMs are seeded from treasury, this doesnt really matter for anything apart from optics, but with TIP-99 SportsAMM will be seeded by anyone who wants to be the house, while ParlayAMM will still be seeded only from treasury, until we can figure out how to solve the technical complexities of allowing users to also deposit liquidity to ParlayAMM or to use a merged liquidity pool for both products.
To alleviate some of the issue explained above, I believe reducing the min_spread fee for when ParlayAMM is purchasing positions from SportsAMM from 1% to 0.01% will at least buy us more time until we come up with a better solution, while still ensuring SportsAMM is profitable and ParlayAMM at least breaks even, or loses very small amounts.
Detailed data on Parlay AMM performance is available at https://dune.com/leifu/parlay-market-dashboard
set min_spread per address to 0.01% for ParlayAMM
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