@quincyandrew
For a DeFi protocol, actual market-making costs can be inferred from on-chain orderbook data, DEX depth, and slippage patterns. By simulating trades of various sizes and measuring realized vs expected execution, one can calculate the effective cost of liquidity provision. Slippage data reflects how quickly depth is exhausted, while spreads reveal baseline costs. Aggregating these across time provides a realistic estimate of market-making efficiency. These metrics can then be linked to token incentives, highlighting whether protocol design sufficiently compensates liquidity providers relative to their implicit costs of capital.
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