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sidebar_position: 1
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# Liquidity Pools: Simplified Overview

Our ecosystem uses interconnected liquidity pools to manage the flow of value between tokens and external markets. This page provides a high-level understanding before diving into the detailed mechanics.

:::tip Start Here
If you're new to the system, read this overview first. Then explore the detailed documentation on [Position-Based Pools](/roadmap/position-based-lp) and [Dutch Auction Exits](/roadmap/dutch-auction-exit).
:::

---

## The Big Picture: Three Pools

```mermaid
graph TB
    subgraph External["External World"]
        FIAT[💵 Fiat/USDC]
        TFT_MARKET[🌐 TFT Market]
    end
    
    subgraph Internal["ThreeFold Ecosystem"]
        TFT_LOCKED[🔒 Locked TFT]
        CC[💎 Cloud Credits CC]
        TFP[📊 TFP TFP]
        
        POOL1["Pool 1: TFT → CC<br/>(One-Way Entry)"]
        POOL2["Pool 2: CC ↔ TFP<br/>(Internal Trading)"]
        POOL3["Pool 3: TFP ↔ USDC<br/>(Controlled Exit)"]
    end
    
    TFT_MARKET -->|Buy TFT| POOL1
    POOL1 -->|Lock TFT<br/>Mint CC| CC
    
    CC <-->|Convert| POOL2
    POOL2 <-->|Based on TFT price| TFP
    
    TFP <-->|Dutch Auction<br/>5% cap, 20% discount| POOL3
    POOL3 <-->|Controlled bridge| FIAT
    
    style POOL1 fill:#e1f5ff
    style POOL2 fill:#fff4e1
    style POOL3 fill:#ffe1e1
```

---

## Your Journey Through the System

### 1. Entry (Pool 1: TFT → CC)

**What it does**: Converts your TFT into stable Cloud Credits

**How it works**:
- You bring TFT (purchased from market or earned from farming)
- TFT gets **locked** (not sold, not converted - just held)
- CC is **minted** at a fixed rate (currently 1 CC for 2 TFT)
- You receive CC to spend on cloud services

**Key point**: This is a **one-way** swap. You can't directly convert CC back to TFT through this pool.

**Example**:
```
You have: 1,000 TFT
You deposit → 1,000 TFT gets locked
You receive → 500 CC (at 2:1 rate)
Your CC is pegged to gold (~$0.128 per CC as of Oct 2024)
```

---

### 2. Internal Movement (Pool 2: CC ↔ TFP)

**What it does**: Lets you maintain TFT exposure while holding stable CC

**How it works**:
- You earn CC from farming or have CC from services
- You can convert CC to TFP based on current TFT market price
- TFP represents a claim on TFT value without holding actual TFT
- You can convert back to CC when needed

**Key point**: This allows you to **participate in TFT upside** without immediately exiting to fiat.

**Example**:
```
You earned: 500 CC from farming
TFT market price: $0.10
You convert → 500 CC becomes 5,000 TFP
If TFT rises to $0.15, your TFP value increases
You can convert back to CC at any time
```

---

### 3. Exit to Fiat (Pool 3: TFP ↔ USDC)

**What it does**: Provides a controlled bridge to cash out to fiat currency

**How it works**:
- You submit a bid in the Dutch auction: amount + minimum acceptable price
- Bids are sorted from lowest price to highest (most discount to least)
- System fills bids until reaching the monthly cap (e.g., 5% of total liquidity)
- Successful bidders receive USDC at the clearing price

**Key point**: This is **controlled liquidity** - not instant withdrawals. It protects the pool from being drained.

**Example**:
```
You want to exit: 10,000 TFP (worth ~$1,000)
You're willing to accept: 20% discount minimum
Others bid: 15%, 18%, 22%, 25%, 30%
Clearing price: 22% (your bid gets filled)
You receive: $780 USDC (after 22% discount)
Margin benefit: Goes to remaining pool members
```

---

## Traditional DeFi vs. Our Approach

| Feature              | Traditional Liquidity Pools              | ThreeFold Position-Based Pools      |
| -------------------- | ---------------------------------------- | ----------------------------------- |
| **LP Tokens**        | Floating value tokens issued             | No tokens - fixed positions tracked |
| **Your Share**       | Changes with market volatility           | Fixed based on contribution + time  |
| **Exit**             | Instant (swap LP tokens)                 | Controlled (Dutch auction)          |
| **Impermanent Loss** | Yes - you lose value in volatile markets | No - your position doesn't change   |
| **Gaming Risk**      | Front-running, sandwich attacks          | Protected by time-weighting         |
| **Best For**         | Active traders                           | Long-term supporters                |

---

## Why Three Pools?

Each pool serves a distinct purpose:

```mermaid
graph LR
    A[User Needs] --> B{What do you need?}
    
    B -->|Stable pricing for services| P1[Pool 1: TFT→CC<br/>Get stable credits]
    B -->|Keep TFT upside exposure| P2[Pool 2: CC↔TFP<br/>Maintain position]
    B -->|Cash out for operations| P3[Pool 3: TFP→USDC<br/>Controlled exit]
    
    style P1 fill:#e1f5ff
    style P2 fill:#fff4e1
    style P3 fill:#ffe1e1
```

### Pool 1: Stability
Gives you predictable pricing for cloud services without exposure to TFT volatility.

### Pool 2: Flexibility
Allows you to move between stable CC and TFT-linked TFP based on your market outlook.

### Pool 3: Liquidity
Provides real fiat exit when needed, with controls that protect all participants.

---

## Visual Flow: Complete User Journey

```mermaid
graph TD
    START([👤 New User]) --> BUY[Buy TFT on Market]
    BUY --> ENTER[Enter Pool 1]
    ENTER --> LOCKED[TFT Locked + CC Minted]
    
    LOCKED --> USE{How to use CC?}
    
    USE -->|Spend on services| SERVICES[☁️ Use ThreeFold Cloud]
    USE -->|Hold as stable value| HOLD[💎 Keep CC]
    USE -->|Want TFT exposure| CONVERT[Convert to TFP in Pool 2]
    
    SERVICES --> BURN[CC Burned by Network]
    HOLD --> WAIT[Wait for opportunities]
    CONVERT --> TFP_HOLD[Hold TFP Position]
    
    TFP_HOLD --> TFP_USE{What next?}
    TFP_USE -->|Need stability again| BACK[Back to CC in Pool 2]
    TFP_USE -->|Need fiat| EXIT[Enter Pool 3 Dutch Auction]
    
    EXIT --> BID[Submit bid with discount]
    BID --> AUCTION{Bid filled?}
    AUCTION -->|Yes| RECEIVE[Receive USDC]
    AUCTION -->|No| RETRY[Try next auction round]
    
    BACK --> LOCKED
    WAIT --> USE
    
    style START fill:#90EE90
    style RECEIVE fill:#90EE90
    style BURN fill:#FFB6C1
```

---

## Key Protections Built In

### 1. No Unlimited Dumping
- Exits are capped per period (e.g., max 5% of total liquidity)
- Dutch auction requires accepting a discount
- Protects all participants from sudden value crashes

### 2. Fair Distribution
- Position-based tracking means early supporters aren't diluted
- Time-weighting rewards long-term commitment
- No front-running or gaming the system

### 3. Sustainable Liquidity
- Only 50% of total contributed liquidity can ever exit via Dutch auctions
- Margin from discounts gets redistributed to remaining participants
- System strengthens with each exit, rather than weakening

### 4. Transparency
- All positions are clearly tracked and visible
- Rules are consistent and applied equally
- No hidden fees or complex formulas

---

## Common Questions

<details>
<summary><strong>Can I get my TFT back immediately?</strong></summary>

Not instantly. You need to:
1. Convert CC to TFP (Pool 2)
2. Exit TFP via Dutch auction (Pool 3) to USDC
3. Buy TFT on the market with USDC if you want TFT again

The original TFT you deposited is locked to back the CC that was minted.
</details>

<details>
<summary><strong>What if I just want stable income from farming?</strong></summary>

Perfect! Just keep your earnings in CC. You get:
- Stable value (pegged to gold)
- No exposure to TFT market swings
- Ability to convert to TFP later if you want upside
</details>

<details>
<summary><strong>How do I benefit from TFT price increases?</strong></summary>

Convert your CC to TFP in Pool 2. TFP value tracks TFT market price, so if TFT goes up, your TFP position becomes more valuable in CC or USDC terms.
</details>

<details>
<summary><strong>What happens to the margin from Dutch auctions?</strong></summary>

When someone exits at, say, a 25% discount, that 25% margin is collected and redistributed to all remaining liquidity providers proportionally. The longer you hold, the more you benefit from others exiting.
</details>

<details>
<summary><strong>Is this like Uniswap or Curve?</strong></summary>

Fundamentally different. Traditional AMMs use value-weighted pools with instant liquidity and impermanent loss. We use time-weighted, position-based pools with controlled exits and no impermanent loss. Trade-off: less instant liquidity, more fairness and protection.
</details>

---

## Next Steps

Now that you understand the overall flow, dive deeper:

1. **[Token System](/core-concepts/token-system)** - Understand TFT, CC, and TFP roles
2. **[Position-Based Liquidity Pools](/roadmap/position-based-lp)** - Learn why this approach is fair
3. **[Dutch Auction Exit](/roadmap/dutch-auction-exit)** - See exactly how exits work with examples
4. **[Yin-Yang Currency](/appendix/yin-yang-currency)** - The philosophy behind dual tokens

---

:::tip Simplified Summary
- **Pool 1**: Get in (TFT → CC)
- **Pool 2**: Move around (CC ↔ TFP)  
- **Pool 3**: Get out (TFP → USDC)

All three work together to give you **stability**, **flexibility**, and **controlled liquidity**.
:::