65fbdb836b
- Based on working minting_plan repository - Configured for threefold.info/economics deployment - Added ops documentation for server deployment - Updated baseUrl and URL configuration
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Position-Based Liquidity Pools
Overview
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.
However, our model uses a time-weighted, position-based pool — a fundamentally different approach that prioritizes fairness and long-term contribution over market speculation.
Key Principles
1. Position-Based Accounting
Every liquidity contribution is recorded as a fixed position:
- Token type (e.g., USDC, Peaq, TFT)
- Contribution amount (e.g., 1,000 USDC)
- Timestamp (e.g., January 1, 2025)
These positions are tracked permanently and do not change with price fluctuations.
2. No Floating LP Tokens
- Unlike standard DeFi protocols, we do not issue LP tokens that float with pool value
- Users do not gain or lose share based on volatility
- Instead, share is determined by:
- How much you contributed
- How early you contributed
Why This Matters
| Feature | Value-Weighted Pools | Time-Weighted, Position-Based Pools |
|---|---|---|
| Contribution tracking | Dynamic | Fixed (amount + time) |
| Exposure to volatility | Yes | No |
| Fairness over time | No | Yes |
| Transferable LP tokens | Yes | No |
| Encourages long-term commitment | No | Yes |
| Impermanent loss | Yes | No |
Implications
Pros
- Fair distribution based on participation, not market timing
- No front-running or last-minute pool stacking
- No impermanent loss (unlike traditional DeFi pools)
- Encourages early and stable contributions
- Aligns incentives with long-term growth, not speculation
Trade-Offs
- No instant liquidity switching between pools
- Internal migrations between pools require position translation, not token swaps
- Less suitable for active traders; optimized for committed supporters
Internal Switching Considerations
Because we track original token amounts and timestamps:
- Users cannot simply "convert" one pool share into another
- Any movement between pools requires:
- Removing the original position from Pool A
- Translating it into an equivalent position in Pool B, preserving contribution integrity
This model behaves more like vesting or NFT-based positions than traditional LP tokens.
Value Calculation and Profit Distribution
How Value is Calculated
Value in this system is calculated using a fundamentally different approach:
- Each liquidity contribution maintains its original value rather than floating with market prices
- Your share of the pool is determined by contribution amount and contribution time
Profit Distribution When Someone Exits
When liquidity providers exit the pool through the Dutch auction mechanism:
Dutch Auction Process
- LPs submit exit bids with an amount and minimum acceptable price
- Bids are sorted from lowest price to highest
- The system fills bids from the bottom up until reaching the maximum allowed exit amount
- The last accepted bid sets the clearing price for all successful exits
Margin Collection
- A discount is defined per pair of tokens (e.g., USDC to TFT)
- When LPs exit, they receive the agreed amount minus this discount
- The collected margin (the discount amount) is pooled together
Profit Distribution
- Collected margins are redistributed to all remaining liquidity providers
- Distribution is proportional to each LP's share of the total liquidity
- The longer you hold, the more you benefit when others leave
Exit Protections
- Only up to 50% of total liquidity ever contributed (minus past exits) can leave through Dutch auctions
- This cap protects the pool from being drained
Summary
Our system is built on time-weighted, position-based liquidity — not market-weighted value shares. This ensures that:
- All participants are rewarded based on what they contributed and when
- Not how the market fluctuates afterward
It's a principled approach for long-term alignment, fair participation, and stable tokenomics.
:::info Virtuous Cycle This creates a virtuous cycle where early and committed participants are rewarded, while the pool remains protected from being drained by opportunistic withdrawals. :::
:::tip Learn More See how exits work in practice with the Dutch Auction Exit Mechanism. :::