Liquidity Providers
Overview
Liquidity providers can provide any of the following 6 liquidity tokens in exchange for minted and automatically staked ALP which entitles them to earn 80% of the full platform fee revenue (plus additional AVT reward tokens for the first 3 months from 15 March 2023 to 14 June 2023 when the platform goes live):
BTC
ETH
OP
USDT
USDC
DAI
Platform fee revenue comprises swap fees, mint/burn fees, liquidation fees and borrowing fees from leveraged trading. Liquidity providers, as ALP holders, will receive their share of revenue in ETH tokens, which can be claimed in minutes directly into their wallets. The additional AVT reward tokens will be paid out from the "Early Liquidity Providers & Traders" allocation pool.
ALP represents a proportionate share of the liquidity pool. ALP is automatically staked to earn the platform fee revenue when the liquidity provider provides any of the 6 liquidity tokens in exchange for ALP (i.e. minting). ALP is minted and redeemed at the price based on:
(Total worth of tokens in the liquidity pool ± profits/losses from open positions) / Total ALP supply
The purpose of the liquidity pool is to provide liquidity for leveraged trading as well as to perform the role as the counter-party to traders' long or short positions. As such, the liquidity pool (and therefore ALP holders) grows in profits when traders make losses, and shrinks due to losses when traders make profits.
How to provide liquidity tokens in exchange for ALP?
If you do not yet have any of the above 6 liquidity tokens on Optimism network, you can first bridge them directly to your wallet here. Please do also remember to bridge some ETH over to pay for the network fees on Optimism network.
Go to "Buy"
Click on "Buy ALP"
Select the liquidity token and amount you would like to provide in exchange for ALP
Check all is in order then click "Buy ALP" to execute the transaction
There is a fee for providing liquidity in exchange for ALP, called the "mint fee". The mint fee for each of the 6 liquidity tokens will differ depending on which tokens the liquidity pool has more or less of. If the liquidity pool has more of a certain liquidity token than others, the mint fee for that liquidity token will be higher and vice versa. The rationale behind this is elaborated below. To check which liquidity tokens have the lowest mint fees, please refer to the "Save on Fees" section here.
How to redeem ALP back to liquidity tokens?
Go to "Buy"
Click on "Sell ALP"
Input the amount of ALP you would like to redeem and select the liquidity token you would like to receive
Check all is in order then click "Sell ALP" to execute the transaction
Please kindly note that there is a minimum holding time of 15 mins after minting before you can redeem ALP back to your liquidity tokens.
Liquidity Pool
Rebalancing
The weights of each liquidity token in the liquidity pool are determined and optimized based on the open positions of traders. If traders take a significant long position on a liquidity token (eg. BTC) relative to other liquidity tokens, then more weight will be assigned to that liquidity token in the liquidity pool. Conversely, if traders take a significant short position on a liquidity token relative to other liquidity tokens, then more weight will be assigned to the stablecoins in the liquidity pool.
If a particular liquidity token's current weight falls below its target weight, both its mint fees and swap fees to swap in this liquidity token for other liquidity tokens will be adjusted lower, to encourage more inflow of this liquidity token into the liquidity pool. If a particular liquidity token's current weight exceeds its target weight, its mint fees will be adjusted higher while its swap fees to swap out this liquidity token for other liquidity tokens will be adjusted lower, to discourage more inflow of this liquidity token into the liquidity pool.
Please refer to the "Dashboard" for the current liquidity token weights.
If the liquidity token price increases and it has higher weight
The liquidity pool (and therefore price of ALP) will increase in value on a net basis. For leveraged long positions, profits as a result of the price increase from the portion reserved for leveraged longs will be used to pay out to the traders, therefore maintaining the stability in value of the reserved portion. For leveraged short positions, the losses from traders from the price increase will be profits made to the liquidity pool.
If the liquidity token price decreases and stablecoins have higher weight
The liquidity pool (and therefore price of ALP) may potentially decrease in value if the leveraged short positions are sizeable. For leveraged short positions, traders will receive payout from the liquidity pool in stablecoins. For leveraged long positions, the losses from traders from the price decrease will be profits made to the liquidity pool.
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