Lynx Finance
WebsiteApp
  • Welcome to Lynx
    • Introduction
    • Core Design
      • Gross Profit and Loss (P&L)
      • Isolated Liquidity Pools
      • Guaranteed Solvency
      • Trigger Bots
    • Cross-Chain Perpetuals
      • Intent-Based Order System
      • Transaction Flow
  • For Users
    • Funding Your Account
    • Liquidity Providers
    • Traders
      • Trading Competitions
      • Cat Mode (High-Leverage)
      • Asset Classes
      • 💎 Sonic Gem Credits
    • Fees
    • Tutorials
      • Deposit/Withdraw to Lynx Account
      • Supply/Remove Liquidity
      • Open/Close a Trade
      • Update Take Profit/Stop Loss
  • For Partners
    • List Your Token
    • Incentive Campaigns
  • Community
    • Glossary
    • FAQs
    • Brand Logo & Guidelines
  • Security
    • Audit Report
    • Deployed Contracts
Powered by GitBook
On this page
  • Choosing a Liquidity Pool
  • Supplying Liquidity
  • Removing Liquidity
  • lxTKN Exchange Rate
  • Risks
  1. For Users

Liquidity Providers

Earning as a Liquidity Provider on Lynx

PreviousFunding Your AccountNextTraders

Last updated 3 months ago

In this section, we examine the role of liquidity providers on Lynx. To see a tutorial on 'How to Supply/Remove Liquidity', see:

Choosing a Liquidity Pool

Liquidity providers (LPs) play a key role on Lynx by funding the pools that users trade against, with deeper liquidity supporting higher trading volumes on the platform. LPs are therefore compensated by earning a portion of the pool's trading fees.

LPs can supply into any of Lynx's single-asset liquidity pools to absorb a portion of the fees generated by that pool, as well as the profits or losses of traders. Supplying into single-asset pools provides tailored exposure without any impermanent loss to the specific asset deposited rather than broad exposure to a multi-asset basket.

Fees are earned in the same asset that was supplied. For example, supplying USDC into the USDC pool returns fees generated in USDC.

Supplying Liquidity

Note: We use the ticker TKN as a generic symbol to represent any ERC-20 token.

After providing liquidity to one of Lynx's liquidity pools, the pool will mint and credit the supplier's wallet with lxTKN (receipt tokens). lxTKN represents a liquidity provider's share of the pool to which they supplied. LPs receive lxTKN according to the specific liquidity pool they supplied to (eg. Supply to the DAI pool and receive lxDAI).

The mechanism for minting lxTKN is based on 1-hour epochs. Upon supplying your assets, your desired lxTKN will be minted and received starting at the end of the epoch. Depending on when you enter the current epoch, this can occur between 0 and 1 hour later.

The amount of lxTKN suppliers receive is determined by the exchange rate at the time of minting, not at the time it was supplied. For example, if an LP deposits 10 DAI when the exchange rate is 1.00 DAI/lxDAI and the exchange rate then increases to 1.25 DAI/lxDAI just before the lxDAI is minted, a liquidity provider would receive 8 lxDAI (1 lxDAI for every 1.25 DAI they supplied).

Removing Liquidity

Note: We use the ticker TKN as a generic symbol to represent any ERC-20 token.

Similar to supplying TKN liquidity, the system for removing TKN is based on 1-hour epochs. When you request to remove your TKN liquidity, your lxTKN will be redeemed and the underlying TKN dispersed to you starting at the end of the epoch. Depending on when in the epoch you request to remove your TKN, you will receive your TKN back between 0 and 1 hour later.

When LPs remove TKN liquidity, their lxTKN is redeemed according to the pool's exchange rate at the end of the current epoch, not at the time the request to remove TKN was made. For example, if an LP requests to redeem 10 lxDAI when the exchange rate is 1.00 DAI/lxDAI and the exchange rate then updates to 1.25 DAI/lxDAI at the end of the epoch, a liquidity provider would receive back 12.5 DAI (every 1 lxDAI exchanged for 1.25 DAI).

Note: If the exchange rate increases between the time the user requested to remove liquidity and the end of the epoch, the user's transaction will be processed using an exchange rate up to 2% higher than when they requested. This limit, akin to a slippage tolerance, may be updated in the future.

lxTKN Exchange Rate

Each liquidity pool possesses an exchange rate that determines the current value of its lxTKN. The exchange rate for lxTKN is calculated by dividing the amount of TKN belonging to the specific pool by the amount of lxTKN minted for that pool. For example, assume 115,000 DAI belongs to the DAI pool and a total supply of 100,000 lxDAI has been minted. The lxDAI exchange rate would be 1.15 (ie. every 1.00 lxDAI is worth 1.15 DAI).

Unrealized-P&L Updates

Every epoch advancement, the system calculates the unrealized-P&L for each pool to determine its outstanding inflows and outflows and calculate the true amount of TKN belonging to it; the lxTKN exchange rate for that pool is then updated accordingly. At these epoch changes, the exchange rate is highly accurate and the system can process lxTKN minting and redemption requests using the fairest exchange rate.

Risks

LPs should consider the following economic and technological risks:

  • Smart Contract Vulnerabilities

Liquidity providers are unable to supply or withdraw liquidity for pools that support Forex trading pairs during closed Forex market hours. Request will be processed as soon as the markets reopen. See for market hours.

To determine the amount of TKN belonging to the pool, the system must take into account both the TKN sitting in the pool at that time but also the pool's unrealized P&L: the potential changes the pool would incur if all open positions were closed at once. This unrealized P&L can be a net positive value (traders owe the pool) or a net negative value (the pool owes the traders). Note: While a pool's unrealized P&L can be negative, Lynx's use of prevents the amount of TKN belonging to the pool from ever being negative. This ensures every pool stays solvent, even under extreme market conditions.

Counterparty Risk: LPs serve as the counterparty to traders (see more ). LPs can therefore lose or earn depending on the performance of traders.

Temporary Liquidity Crunches: In times of high pool utilization, LPs may have to wait a bit before being able to withdraw; during these times, LPs earn high interest from traders (see )

Supply/Remove Liquidity
protocol safeguards
here
Protocol Safeguards
Forex
After supplying TKN, a user's lxTKN will be minted and distributed to them starting at the end of the epoch
After requesting to remove your TKN liquidity, your TKN is received at the end of the epoch once the lxTKN has been exchanged
Drawing
Drawing