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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 and Dutch Auction Exits. :::
The Big Picture: Three Pools
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]
TFTF[📊 TFT Future TFTF]
POOL1["Pool 1: TFT → CC<br/>(One-Way Entry)"]
POOL2["Pool 2: CC ↔ TFTF<br/>(Internal Trading)"]
POOL3["Pool 3: TFTF ↔ 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| TFTF
TFTF <-->|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 ↔ TFTF)
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 TFTF (TFT Future) based on current TFT market price
- TFTF 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 TFTF
If TFT rises to $0.15, your TFTF value increases
You can convert back to CC at any time
3. Exit to Fiat (Pool 3: TFTF ↔ 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 TFTF (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:
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↔TFTF<br/>Maintain position]
B -->|Cash out for operations| P3[Pool 3: TFTF→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 TFTF 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
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 TFTF in Pool 2]
SERVICES --> BURN[CC Burned by Network]
HOLD --> WAIT[Wait for opportunities]
CONVERT --> TFTF_HOLD[Hold TFTF Position]
TFTF_HOLD --> TFTF_USE{What next?}
TFTF_USE -->|Need stability again| BACK[Back to CC in Pool 2]
TFTF_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
Can I get my TFT back immediately?
Not instantly. You need to:
- Convert CC to TFTF (Pool 2)
- Exit TFTF via Dutch auction (Pool 3) to USDC
- 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.
What if I just want stable income from farming?
Perfect! Just keep your earnings in CC. You get:
- Stable value (pegged to gold)
- No exposure to TFT market swings
- Ability to convert to TFTF later if you want upside
How do I benefit from TFT price increases?
Convert your CC to TFTF in Pool 2. TFTF value tracks TFT market price, so if TFT goes up, your TFTF position becomes more valuable in CC or USDC terms.
What happens to the margin from Dutch auctions?
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.
Is this like Uniswap or Curve?
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.
Next Steps
Now that you understand the overall flow, dive deeper:
- Token System - Understand TFT, CC, and TFTF roles
- Position-Based Liquidity Pools - Learn why this approach is fair
- Dutch Auction Exit - See exactly how exits work with examples
- Yin-Yang Currency - The philosophy behind dual tokens
:::tip Simplified Summary
- Pool 1: Get in (TFT → CC)
- Pool 2: Move around (CC ↔ TFTF)
- Pool 3: Get out (TFTF → USDC)
All three work together to give you stability, flexibility, and controlled liquidity. :::