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Liquidity Pool

What is a Liquidity Pool (LP)?

A liquidity pool is a smart contract that facilitates decentralized trading and liquidity management. By depositing assets into the liquidity pool, you can receive Liquidity Provider (LP) tokens and participate in the platform’s profit-sharing mechanism.

Feature Guide

My Pool
Top Pools

1. Adding Liquidity

Users can deposit assets into the liquidity pool to receive LP tokens corresponding to the current net asset value.

Steps to Use:

  1. Ensure your wallet has sufficient assets (e.g., ETH or ERC20 tokens).

  2. Visit https://www.orbiter.finance/pool and locate the pool corresponding to your asset’s network.

  3. Enter the amount of liquidity you wish to add, or click "Max" to add all available assets.

  4. Upon success, you will receive the corresponding amount of LP tokens.

    1. Input quantity

    2. Success

Notes:

  • For ERC20 tokens, you may need to approve the contract to access your tokens. Please confirm the approval request.

  • The transaction will fail if the total liquidity exceeds the pool's cap.

2. Removing Liquidity

Users can burn LP tokens to withdraw assets from the liquidity pool, along with a share of the profit based on the net value.

Steps to Use:

  1. Ensure you have sufficient LP tokens.

  2. Go to the My Pool page, select the pool from which you want to withdraw, and access the removal interface.

  3. Enter the number of LP tokens you wish to burn, or click "Max" to withdraw all available liquidity.

  4. Upon success, your LP tokens will be burned, and you will receive your principal and profits based on the current net value.

    1. Input quantity

    2. Success

Notes:

  • For ERC20 tokens, you may need to approve the contract to access your tokens. Please confirm the approval request.

  • The total liquidity removed cannot exceed the available liquidity in the pool.

3. Cross-Chain Withdrawals (Coming Soon)

Users will be able to withdraw liquidity from other supported chains.

Earnings Formula Based on LP Share

Earnings=Your LP Token BalanceTotal LP Token Supply in the Pool×Total Trading Fees Collected\text{Earnings} = \frac{\text{Your LP Token Balance}}{\text{Total LP Token Supply in the Pool}} \times \text{Total Trading Fees Collected}

Formula Explanation

  1. Your LP Token Balance: The total amount of LP tokens you hold, representing your share in the liquidity pool.

  2. Total LP Token Supply in the Pool: The sum of all LP tokens held by all users in the pool, indicating the pool's total size.

  3. Total Trading Fees Collected: The total fees collected by the pool over a specific period through trading activities.

Earnings Settlement Method:

  • Earnings will automatically accumulate in the pool and be reflected through the LP tokens you hold.

  • When you remove liquidity, you can withdraw both your principal and the corresponding earnings.

Annual Percentage Rate (APR)

APR (Annual Percentage Rate) is a common metric to measure the return on investment in liquidity pools, indicating the total return over the course of one year.

APR Calculation Formula

In our model, APR is calculated using the following formula:

APR=minAPR+(maxAPR−minAPR)×Utilization Rate\text{APR} = \text{minAPR} + (\text{maxAPR} - \text{minAPR}) \times \text{Utilization Rate}

Formula Explanation

  • minAPR: The minimum APR of the liquidity pool.

  • maxAPR: The maximum APR of the liquidity pool.

  • Utilization Rate: The ratio of the funds actively used in the liquidity pool to the total funds in the pool.

Linear Relationship

The relationship between APR and Utilization Rate is linear. That is, as the Utilization Rate increases from 0 to 1, APR increases linearly from minAPR to maxAPR.

  • When Utilization Rate = 0, APR = minAPR.

  • When Utilization Rate = 1, APR = maxAPR.

ExampleAPR will vary linearly between minAPR and maxAPR depending on the Utilization Rate.

Annual Percentage Yield (APY)

APY (Annual Percentage Yield) is similar to APR, but it considers the compounding effect, meaning the earnings grow due to periodic distribution and reinvestment.

APY Calculation Formula

The APY is calculated from the APR using the following formula:

APY=(1+APRperiodsPerYear)periodsPerYear−1\text{APY} = \left(1 + \frac{\text{APR}}{\text{periodsPerYear}}\right)^{\text{periodsPerYear}} - 1

Formula Explanation

  • APR: The annual percentage rate (known).

  • periodsPerYear: The number of periods in a year, typically daily, hourly, or set based on actual conditions.

Utilization Rate

Utilization Rate is a key factor in calculating the annual percentage rate (APR), indicating the ratio of funds actively used in the liquidity pool compared to the total funds in the pool.

Utilization Rate=Maker Lends AmountTotal Liquidity Amount+Idle Amount\text{Utilization Rate} = \frac{\text{Maker Lends Amount}}{\text{Total Liquidity Amount} + \text{Idle Amount}}

Formula Explanation

  • Maker Lends Amount: The amount of liquidity lent by the maker, representing the total funds borrowed out of the liquidity pool.

  • Total Liquidity Amount: The total liquidity in the pool, which is the sum of all funds.

  • Idle Amount: The idle funds, typically calculated as the difference between the total inflows and outflows of funds.

Important Notes

  • Risk Disclaimer: Providing liquidity may involve price and net value fluctuations. Frequent operations may lead to losses.

  • Security: Ensure you are operating in a secure environment and do not disclose your wallet private keys.

Frequently Asked Questions (FAQ)

1. Why did my transaction fail?

  • Verify that the pool's liquidity cap has not been exceeded.

  • Ensure you have granted the necessary token approvals.

  • Confirm that your signature is valid.

  • Make sure you have enough network fees to pay for gas

2. How can I check my LP token balance?

You can check your LP token balance via your wallet or a blockchain explorer.

3. What should I do if the liquidity pool is paused?

If the pool is paused, you will temporarily be unable to perform operations. Please wait until the pool resumes.

For additional inquiries, please contact the Orbiter Finance official support team.

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