Protocol Rules

# Liquidity Provider

Liquidity providers deposit liquidity into pools and define a yearly rate or Funding Rate for these liquidities.

Liquidity Provider are needed to guarantee the profit and loss of the traders. A liquidity provider bet against the capacity of the traders to make money in a given market and at a minimum funding rate.

Pools are made of concentrated liquidities arranged around a set of ticks. Each tick being a BPS (Basis Point) range of the funding rate.

The ticks range start at -604460 and end at 604460 or -6044.6% to 6044.6% per year. A Funding Rate can be negative, in which case the liquidity provider will pay the trader to hold the synthetic asset.

A liquidity provider can have its liquidity totally inactive, totally active, or partially active/inactive.

Example:

Alice deposit 1 ETH into the S-USD (Synthetic USD) pool at a 1% Funding Rate or in the 100th tick of the pool. The S-USD pool is currently at a 1% funding rate. Alice liquidity will be immediately active, but if the liquidity in the 100th (1%) tick are only partially used, Alice liquidity will be partially active too.

To be completely active, Alice would need to outcompete the current Funding Rate and deposit its liquidity below the 100th tick. Reducing the current funding rate in the process.

Liquidities in a pool are auto-compounded. In other words - fees earned from the funding rate, swap fees or trader PnL will automatically get added to the liquidity provider liquidity.

# MEV protection

Because Liquidity Providers are exposed not just to the funding rate and the swap fees, but also to the trader PnL, they have an incentive to enter or exit the active range before a trader settle its PnL.

A Liquidity Provider having access to the mempool could extract MEV by exiting or entering at the right time. To discourage such behaviour, liquidity providers are subject to the same rules as traders, they need to wait for the next price to exit the pool.

The process of entering/exiting a pool is a 2 step process. If a liquidity provider fail to claim at the next price, the deposit/withdraw will be canceled.

This 2 step process can be automated via a permissioned third party or a smart contract.

# Funding Rate

Please refer to the fee section for more information about the funding rate.