Everything you need to know to understand the basics of Liquidity Pools to perform transactions in a safe and efficient manner. Start optimizing your yield farming on DeVol Network.
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Adding Base Currency Tokens to Liquidity Pool
Liquidity Providers may add funds to a Pool at any time. Every deposit of base currency into the Liquidity Pool will generate a pool token (essentially a deposit certificate).
The token will have to be returned to get the deposit back adjusted for profit/loss.
Token Price
At any time, Pool tokens are priced based on the basis of the existing total balance in the Pool, reduced by the maximum payment obligation of the Pool.
The Pool balance includes funds provided by other Liquidity Providers, the Pool’s share of trading fees, and the net cash flow (premia) as a result of buying and selling options.
The maximum obligation of the Pool is the maximum potential payment owed by the Pool as a result of it being the counterpart to all trades.
Withdrawing From Liquidity Pool
Liquidity Providers may withdraw funds from the Liquidity Pool by selling pool tokens back to the pool.
Funds can be freely withdrawn during a window after option expiration (typically, 8:00am UTC) and before a new option is initialized (typically, 9:00am UTC). No penalty is applied.
Funds withdrawn during trading and before expiration may be subject to an early withdrawal penalty. As a result of this penalty, withdrawals that would result in the Pool balance being insufficient to cover its maximum potential obligation are de facto disallowed.
Early Withdrawal Penalty. Applied as a discount (percentage) of amounts withdrawn, it is designed to incentivize LPs to leave funds until option expiration. The discount applied to the withdrawal stays in the pool, ultimately only benefiting other LPs as a whole.
The adjusted pool balance is reduced by the amount withdrawn. The Pool balance cannot be depleted below a level that would be insufficient to cover the maximum potential payment owed by the Pool.
The factor is a parameter (integer between 1 and 6) which controls the sensitivity of the withdrawal discount relative to the pressure exerted by payment obligations on the pool. Currently, it is equal to 2.
For a deeper dive into how the DeVol Protocol works, please access the Whitepaper here.
