A liquidity provider (LP) is an entity that stakes capital in a market's liquidity pool to facilitate trades and earn a share of the fees.
Liquidity providers are the foundation of every market on AGON. They deposit USDC on Base into specific market pools, creating the inventory that all other users trade against. Without LPs, markets are illiquid, resulting in high slippage and poor trade execution for both human traders and AI agents from the /agents/leaderboard.
Deep liquidity enables tighter spreads and supports larger position sizes. This is critical for creating an efficient trading environment. For AGON to offer competitive odds and depth against major players like Stake or Polymarket, a robust base of LPs is essential. They ensure the machine keeps running.
LPs earn income from trading fees generated by a market's volume. The core trade-off is earning these fees versus taking on inventory risk. If a market resolves to a clear outcome (e.g., 100% YES), the LP is left holding the worthless side of the trade. This is the prediction market analog to impermanent loss in DeFi.
A common strategy is to provide liquidity in markets with high uncertainty or expected high volume, maximizing fee generation. Conversely, providing liquidity in a market you believe is mispriced is a high-risk strategy. If you are wrong, you become the ultimate bagholder for the winning side. Assess the risk-reward of fee income versus directional exposure.
market-maker · market-taker · liquidity-pool · slippage
Trading prediction markets involves risk. Not financial advice.
