despiegk
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128 lines
4.9 KiB
Markdown
128 lines
4.9 KiB
Markdown
---
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sidebar_position: 3
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---
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# Position-Based Liquidity Pools
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## Overview
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In traditional DeFi systems, liquidity providers (LPs) are issued **floating LP tokens** that represent their proportional share of a pool's current value. These are known as **value-weighted pools**, where your position fluctuates with market volatility and total pool value.
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However, our model uses a **time-weighted, position-based pool** — a fundamentally different approach that prioritizes fairness and long-term contribution over market speculation.
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## Key Principles
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### 1. Position-Based Accounting
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Every liquidity contribution is recorded as a **fixed position**:
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- Token type (e.g., USDC, Peaq, TFT)
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- Contribution amount (e.g., 1,000 USDC)
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- Timestamp (e.g., January 1, 2025)
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These positions are tracked permanently and **do not change with price fluctuations**.
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### 2. No Floating LP Tokens
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- Unlike standard DeFi protocols, we **do not issue LP tokens** that float with pool value
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- Users do not gain or lose share based on volatility
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- Instead, share is determined by:
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- **How much** you contributed
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- **How early** you contributed
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## Why This Matters
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| Feature | Value-Weighted Pools | Time-Weighted, Position-Based Pools |
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| ------------------------------- | -------------------- | ----------------------------------- |
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| Contribution tracking | Dynamic | Fixed (amount + time) |
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| Exposure to volatility | Yes | No |
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| Fairness over time | No | Yes |
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| Transferable LP tokens | Yes | No |
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| Encourages long-term commitment | No | Yes |
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| Impermanent loss | Yes | No |
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## Implications
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### Pros
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- **Fair distribution** based on participation, not market timing
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- **No front-running or last-minute pool stacking**
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- **No impermanent loss** (unlike traditional DeFi pools)
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- Encourages **early and stable contributions**
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- Aligns incentives with long-term growth, not speculation
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### Trade-Offs
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- **No instant liquidity switching** between pools
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- Internal migrations between pools require **position translation**, not token swaps
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- Less suitable for active traders; optimized for committed supporters
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## Internal Switching Considerations
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Because we track original token amounts and timestamps:
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- Users cannot simply "convert" one pool share into another
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- Any movement between pools requires:
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- Removing the original position from Pool A
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- Translating it into an equivalent position in Pool B, preserving contribution integrity
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This model behaves more like **vesting or NFT-based positions** than traditional LP tokens.
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---
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## Value Calculation and Profit Distribution
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### How Value is Calculated
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Value in this system is calculated using a fundamentally different approach:
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- Each liquidity contribution maintains its **original value** rather than floating with market prices
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- Your share of the pool is determined by **contribution amount** and **contribution time**
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### Profit Distribution When Someone Exits
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When liquidity providers exit the pool through the Dutch auction mechanism:
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#### Dutch Auction Process
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1. LPs submit exit bids with an amount and minimum acceptable price
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2. Bids are sorted from lowest price to highest
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3. The system fills bids from the bottom up until reaching the maximum allowed exit amount
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4. The last accepted bid sets the clearing price for all successful exits
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#### Margin Collection
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- A discount is defined per pair of tokens (e.g., USDC to TFT)
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- When LPs exit, they receive the agreed amount minus this discount
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- The collected margin (the discount amount) is pooled together
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#### Profit Distribution
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- Collected margins are redistributed to all **remaining liquidity providers**
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- Distribution is proportional to each LP's share of the total liquidity
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- **The longer you hold, the more you benefit** when others leave
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#### Exit Protections
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- Only up to 50% of total liquidity ever contributed (minus past exits) can leave through Dutch auctions
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- This cap protects the pool from being drained
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---
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## Summary
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Our system is built on **time-weighted, position-based liquidity** — not market-weighted value shares. This ensures that:
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- All participants are rewarded based on **what** they contributed and **when**
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- Not how the market fluctuates afterward
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It's a principled approach for long-term alignment, fair participation, and stable tokenomics.
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:::info Virtuous Cycle
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This creates a virtuous cycle where early and committed participants are rewarded, while the pool remains protected from being drained by opportunistic withdrawals.
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:::
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:::tip Learn More
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See how exits work in practice with the [Dutch Auction Exit Mechanism](./dutch-auction-exit.md).
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:::
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