Perpetual Pools

What are Perpetual Liquidity Pools?

Perpetual Liquidity Pools, or "perp pools", are similar to spot liquidity pools in that they provide liquidity to markets.

While spot pools provide liquidity to spot markets and require at least two tokens, perp pools provide liquidity to perpetual markets and only require one token (USD).

How do they work?

Liquidity providers deposit USD to perp pools to add liquidity to perp markets and receive an LP token in return. These are yield-bearing tokens that signify your share of the provided liquidity in the perp pool.

Perp pools use received USD to place resting bids and asks near the oracle price on their assigned perpetual markets.

The perp pool has an automated market-making strategy that places resting bids and asks on the order book around the oracle (index) price for the perpetual markets.

Each pool has its unique strategy that is designed to create a desirable slippage or spread, ensuring competitive rates for traders while securing sufficient yield for the liquidity providers.

How do LP tokens earn yield?

They earn from trading APR, which comprises the following:

1

Maker Rebates

When a trade is executed using your liquidity, the pool earns maker rebates of up to 0.08% of the fee paid, making it one of the highest among perp DEXs. This rewards users for adding liquidity to the market and promoting order book depth.

2

Funding Rates

As part of the perpetual trading mechanism, funding rates are exchanged between traders. Liquidity providers also earn a share of these funding fees in the form of borrowing fees for lending their liquidity to the pool.

Perp pools have a unique funding rate mechanism that gradually increases if the longs and shorts are imbalanced by encouraging funding rate arbitrageurs to take the less popular trade, rebalancing the skew between longs and shorts.

3

Traders PnL

You will receive 90% of the losses generated by traders who open and close their trades at a loss when using the liquidity in the perp pool for their trades.

What makes our Perpetual Liquidity Pools unique?

Parallelized Liquidity creates multiplied liquidity efficiency

Suppose you deposit $1K into a Perp Pool that's linked to BTC-PERP and ETH-PERP with a max liquidity ratio of 1.0 for each. The max liquidity ratio indicates how much liquidity is provided to that market, with 1.0 being the maximum.

Upon your deposit, a $1,000 bid limit order and a $1,000 ask limit order will be placed by the perp pool near the Index price on the BTC-PERP market as well as the ETH-PERP market. Thus, your $1,000 liquidity contribution effectively generates $4,000 in order book liquidity.

The bid and ask prices are kept close to the Index price to provide traders with competitive rates. These prices are frequently updated to follow the Index price.

Trading Example

Now, let's assume a trader goes long and fully utilizes the $1,000 of liquidity provided by the perp pool on BTC-PERP. Now, the trader is $1,000 long BTC, and the pool is $1,000 short BTC. Let's break down what happens first.

The trader is essentially borrowing your liquidity to go long. Also, the liquidity available on ETH-PERP will be simultaneously removed as the pool only has $1,000 of liquidity, ultimately, even if there's a total of $4,000 of liquidity on the order books.

In terms of fees, the trader will incur taker fees based on his fee tier, while you earn maker rebates. Typically, the taker fee starts at 0.15% while you earn 0.08% maker rebate, and the remaining 0.07% goes to the protocol, of which 60% goes to stakers.

Now, if BTC goes down, the trader's long position is down as well. Let's say the position is down 50% or $500, and the trader chooses to realize his loss. The trader can close his position against the pool by going short, which reduces his long position and the pool's short position.

The pool's short position would also be up $500.

Dynamic Funding Rate

To protect liquidity providers, perp pools have a dynamic funding rate mechanism. The funding rate gradually increases when the liquidity utilization rate is high, allowing liquidity providers to earn more when there is a preference for the majority of traders to go long or short.

Additionally, the high funding rate also encourages funding rate arbitrageurs to take the less popular trade, reducing the perp pool’s exposure back towards 0, helping the pool to be delta-neutral even during directional markets.