Liquidity Pools
Last updated
Last updated
In traditional pool-based perpetual decentralized exchanges, liquidity provider (LP) vaults typically represent an index of tokens, each carrying varying levels of beta risk. This complexity can make it challenging for average users to engage and accurately assess the trade-off between risk and potential returns derived from fee income.
The delta-neutral vault concept addresses this issue by eliminating the need for LPs to consider the beta risk associated with the vault. Instead, LPs can concentrate solely on earning trading fees and managing losses incurred from trader activities.
Moreover, this approach opens the door for a broader audience eager to allocate their tokens (e.g., Bitcoin) in search of yields, consequently enhancing the liquidity pool's size and improving trading depth for all participants.
For each delta neutral vault, the LP token price is calculated as:
For example, a BTC pool with 102 BTC in the pool (LP Deposits + Fees) with 100 LP token issued will have a price of 1.02. Any one Depositing/ Withdrawing from the pool will be calculated at this price.
Pool yields are reflective of the Annual Percentage Yield (APY) generated from trading fees within the pools, as well as profit and losses incurred from taking other side of traders.
For any additional participants wishing to add more liquidity into the pool, they will make their purchase at the latest LP pool price.
Every time there is a trading activity or when liquidity is added or removed, the LP token price will be updated accordingly.
When removing liquidity, The process effectively involves selling the LP tokens back to the pool. Once the liquidity has been successfully removed, the LP can withdraw the funds to their own wallet. A 0.3% fee is applied when an LP withdraws liquidity from the LP pools.
| Term | Parameter |
|---|---|
$BTC Minimum Addable
0.1 BTC
$WBTC Minimum Addable
0.1 WBTC
$MBTC Minimum Addable
0.1 MBTC
$SolvBTC Minimum Addable
0.1 SolvBTC