Hedge Layer/Docs

Liquidity Provision

How Hedge Layer finds LP opportunities and produces allocation recommendations without live execution.

Liquidity provision is market-making, not directional trading. Instead of betting that a market is mispriced, the strategy tries to earn from maker economics: rewards, spread capture, useful order-book depth, and disciplined capital rotation. The hard part is avoiding adverse selection, overexposure, and ambiguous resolution risk.

Hedge Layer's current LP workflow is recommendation-only. It shows what the allocator would do under a strategy, but it does not place trades, cancel orders, custody funds, or hold CLOB credentials.

Workflow

  1. Find candidates — ask the chat or CLI for LP opportunities, reward-yield markets, or liquidity-provider screens.
  2. Score opportunity quality — feed rows combine reward yield, spread, volume, fill likelihood, depth, time horizon, stability, and market quality.
  3. Estimate capacity — each candidate includes an approximate amount of useful capital before return falls or inventory risk rises.
  4. Apply strategy constraints — the allocator uses total capital, per-market caps, spread limits, liquidity minimums, and time-to-resolution rules.
  5. Choose quote regime — decisions include target capital, safety checks, rationale, and reward/defensive/no-quote mode.

Feed Signals

LP-focused feed screens look for markets where additional liquidity may be useful and compensated. The main signals are:

  • Reward yield — daily reward rate relative to required liquidity or quote depth
  • Spread capture— room for passive quotes without crossing the strategy's fair-value band
  • Fill likelihood — recent volume and top-of-book activity
  • Depth gap — books where added liquidity improves quality without overcapitalizing the market
  • Time horizon — enough time to earn rewards without holding capital too close to resolution
  • Risk flags — low liquidity, wide spreads, volatility, unclear resolution, or near-term catalysts

Allocator Decisions

An allocator request receives strategy settings, candidate markets, and current allocation state. It returns auditable decisions:

  • SKIP — safety gates or expected return fail
  • WATCH — candidate is promising but not ready to allocate
  • ALLOCATE — reserve target capital for a market
  • INCREASE or REDUCE — adjust an existing allocation
  • EXIT — stop targeting capital when hard safety gates fail

Each decision includes the inputs used, target capital, capital delta, safety checks, human-readable rationale, quote regime, inventory status, and split economics.

Safety Boundary

The allocator endpoint is authenticated and rate-limited. POST /api/lp/allocator forces strategies to dry_run or paused; if a client sends live, the web API downgrades it. Live LP execution requires future approval flows, credential boundaries, portfolio caps, monitoring, and kill switches.

Try It

Ask Hedge Layer:

  • "Show LP opportunities with rewards and thin books"
  • "Find markets where I could provide liquidity with controlled risk"
  • "Run the liquidity-provider feed and prepare allocator inputs"

For endpoint details, see the API Reference.