Liquidity Providers
Liquidity Providers are users who fund Limitless pools in return for earning trading fees and premiums.
Last updated
Liquidity Providers are users who fund Limitless pools in return for earning trading fees and premiums.
Last updated
Yields for LPs in Limitless are generated from two sources
Spot exchange trading fees generated in Uniswap
Premiums paid by leverage traders and borrowers
where the Premiums consist of the following elements
Loan Interest(based on the premium model)
Options Premium(based on the premium model)
Loan origination fees paid by leverage traders and borrowers(0.1% of all originated loans by default).
Profit share paid by leverage traders(5% of profit generated by default)
At any given point, an LP's liquidity position is rehypothecated which allows it to be utilized for both trading and lending. Liquidities that are closer to current market prices will be used for trading, while liquidities that are far away from current prices will only be used for lending.
Liquidities that need to be lent out are split and discretized to be removed from Uniswap. This lent-out liquidity is then provided back to Uniswap when the liquidity is repaid. Technical details on how this is achieved are outlined here.
In this instance, the liquidity provisioning experience is the same as in Uniswap V3; choose a range that you want to provide liquidity in and mint a new nonfungible LP token. In the backend, your liquidity will be automatically provided to Uniswap.
In addition, existing Uniswap V3 LPers who want to amplify their yields can also restake their LP position to Limitless.
Since there are two yield sources(trading fees+premiums) instead of one(trading fees), liquidity providers can also opt to provide single-sided liquidity(bids/asks) far from the current price to just earn premiums.
The withdrawing experience is also similar to that of Uniswap V3, with a key difference.
Before withdrawing liquidity the protocol checks whether the amount specified can be withdrawn for the given tick range. An LP can only withdraw if, after he has withdrawn, the utilization rate of any of the ticks does not exceed 100%.
Say Alice provided x amount of liquidity in the (N-1, N+1) range. After, a trader Bob borrowed y amount of liquidity from the same (N-1, N+1) range. This leaves only x-y amount of liquidity left in the range, so Alice would not be able to withdraw her entire x liquidity. The maximum she can withdraw is x-y.
Since there is not enough liquidity to fully withdraw her position, Alice would have to come later until either somebody provides liquidity equal to or greater than y in the (N-1, N+1) range or until Bob closes his position and repays the debt. Until then, Alice's LP position will be able to accrue Bob's continuous premium payments.
Although the LP's ability to withdraw is restricted in scenarios where their position is maximally utilized, the utilization rate-based premium model is designed to strongly incentivize traders to repay their loans, enabling the LP to make full withdrawals.
More information related to withdrawal limitations is outlined here.
This lending model is a peer-to-pool system; an LP who provided liquidity in the (x1,x2) range can only withdraw if the liquidity at (x1,x2) is not fully utilized.
