How Thetis LP Work
Last updated
Last updated
Thetis Isolated Liquidity Pool Model
The Thetis isolated liquidity pool model stands out by focusing on individual token pairs rather than aggregating multiple tokens into a single pool, as seen in traditional LP pool models, or using synthetic models which only use a pool of stable coin to settle trades' results. This model isolates liquidity for each token pair, such as BTC-USDC, ETH-USDC, and APT-USDC, ensuring deep liquidity and minimize risks for users. By the end of this page, you'll have a clear and precise understanding of how the Thetis isolated liquidity pool model works.
Index Price Feed: This price feed is used to open and close long and short positions.
Long Token: The asset that backs long positions, like BTC, ETH or APT.
Short Token: The stable coin that backs short positions, like USDC.
Index Price Feed: ETH/USD
Long Token: ETH tokens backing long positions
Short Token: USDC tokens backing short positions
The Thetis isolated liquidity pool model is designed to provide a safer and more efficient trading environment. Here’s why this model stands out:
Risk Mitigation: Isolated pools ensure that poor performance in one token doesn't affect others, reducing financial contagion and providing a stable trading environment.
User-Specific Pools: Users can focus on specific pools like BTC-USDC, ETH-USDC, or APT-USDC, offering greater control over trading and liquidity provision strategies.
Future-Proof Design: The model allows adding new trading pairs without compromising existing pools, ensuring scalability and adaptation to market demands.
Optimal Trading Conditions: Deep liquidity in each pool ensures large trades execute with minimal slippage, providing the best rates and efficient executions.
Enhanced Security: The separation of pools enhances overall platform security, making trading more reliable by containing potential vulnerabilities within individual pools.
The Thetis isolated liquidity pool model offers a robust, flexible, and secure platform, setting a new standard in decentralized finance.
Liquidity providers (LPs) in the Thetis ecosystem play a crucial role as they act as counterparties to traders. When traders open leveraged positions, they borrow tokens from these dedicated pools. LPs, in return, earn fees from these leveraged trading activities, along with borrowing fees and earnings from swaps.
As a holder of Thetis LP, you receive a significant portion of the fees generated by the perpetual trading exchange. This income is directly reinvested into the corresponding LP, increasing its value and facilitating continuous compounding of yield and earnings.
Each Thetis LP token represents a meticulously constructed index of two assets: USDC and the pool's designated token (BTC, ETH, or APT). These pools are primed for swaps and leverage trading, ensuring deep liquidity and optimal trading conditions for users.
When an LP adds liquidity to a Thetis pool, they increase the Assets under management (AUM), which enhances the liquidity available for trading. Thetis pools will create new perpetual tokens later in the future. We plan to add more pairs in the future into Thetis Earn, but for now here are the pairs currently available in Thetis LP Pools:
BTC/USDC LP
ETH/USDC LP
APT/USDC LP
LPs can acquire LP tokens by adding liquidity directly to the Thetis pools. This can be done by depositing either a single token (BTC,ETH, or APT) or a pair of tokens (BTC,ETH, or APT and USDC). The protocol will re-price the TVL based on the USD value of the deposited assets.
For specific steps on how to add liquidity to each Thetis LP, check out: How to Buy Thetis LP.
LP tokens can be sold for the underlying assets in the pool. Simply specify the amount of LP tokens you wish to sell, and the corresponding amount of tokens will be transferred to your wallet. The LP token will be burned, reducing the supply.
The best way to manage your liquidity in Thetis pools is directly through the Thetis interface. Regular updates to TVL caps ensure that liquidity remains balanced, preventing excessive premiums.
For specific steps on how to remove liquidity from each Thetis LP, check out: How to Sell Thetis LP.
Bull Markets: During a bull market, Thetis LP tokens may not outperform assets like APT, ETH, or BTC. This is due to the pool containing a mix of stable and volatile tokens. While this poses less of a risk, it's important to note that in a bull market, the value of Thetis LP tokens might increase at a slower rate compared to some of the individual tokens they contain.
Profit and Loss (PNL) Dynamics: Traders' PNL from perpetual trading impacts the Thetis LP pool. If a trader realizes a net positive PNL, the losses are sourced from the Thetis LP pool to compensate the trader. Conversely, if a trader's PNL is net negative, the gains are deposited into the Thetis LP pool for LP holders.
Longs: If a trader profits on a long position, the Thetis LP pool will lose in the longed token quantity but not in USD value because the underlying token value in the pool appreciates.
Shorts: If the trader profits on the short, the Thetis LP pool will lose some USDC stable coins but the shorted token will remain the same. This causes a net USD loss on the Pool.
Token Price Fluctuations: The Thetis LP pools consist of both stable and non-stable tokens. Fluctuations in token prices can impact the value of Thetis LP tokens. As a result, users may find that the value of their withdrawn tokens is less than their initial deposit. Additionally, the deposit and withdrawal fees for Thetis LP pools can further reduce the number of tokens withdrawn, especially for shorter holding periods.
Can Thetis LP value go down? Yes. As shown in the trader profiting on a short trade, Thetis LP token in USD value will go down when the fees generated are lower than depreciation of assets and payout from traders' profit.
Fee Sources: The exchange generates fees through opening and closing positions, borrowing fees, and trading fees of the pools, for spot assets.
Compounding: 70% of the fees generated are compounded into the pool hourly, increasing the value of LP tokens over time.
It is essential to note that pool earnings and losses (index token appreciation/depreciation) are not factored in the overall yield calculation.
Opening a Position
7 BPS (0.07%)
Closing a Position
7 BPS (0.07%)
Price Impact Fee
Variable (based on trade size)
Swap Fee
Between 0 BPS to 150 BPS (depending on pool weightage)
Borrow Rate
1 BPS/hour x token utilization percentage
Remove Liquidity Fee
Normal Pool: 0.07% Negative Impact
Stable Pool: 0.02% Negative Impact
Explanation
Opening/Closing Positions: Fee of 0.07% on transaction volume.
Price Impact Fee: Variable, based on the size of the trade.
Swap Fee: Ranges from 0% to 1.5%, depending on the pool's weightage.
Borrow Rate: Calculated as:
Aptos Network Fee: A minimal fee for transactions on the Aptos network.
Virtual Price: Calculated as the sum of all assets in the LP pool divided by the total quantity of LP tokens in circulation.
Market Price: May include a market-assigned premium when AUM (Assets Under Management) limits are hit.
To provide an estimated perspective, you can calculate potential revenue by taking the Thetis Perpetual Exchange's daily or weekly total volume and multiplying it by a fee percentage. For instance:
Total Daily Volume: $50 million
Fee Percentage: 0.07%
Price Impact Fees: 0.01% average
Revenue Share Percentage: 70%
Using these values, the calculation would be as follows:
Total revenue to be deposited into the LP pool: $50M x 0.08% x 70% = $28,000
To determine your specific share or weight in the total LP pool, use the following formula:
For example:
Your contribution: $1,000
Total pool amount: $4,000,000
Your share percentage: 1,000 / 4,000,000 x 100 = 0.025%
Finally, you can calculate your generated revenue share by multiplying the results of the first and second calculations: revenue share you generate = $28,000 x 0.025% = $7.00
Virtual Price: Sum of all LP Assets (in USD) / Total Quantity of LP in circulation
Market Price: Virtual Price + Market-assigned Premium (when AUM Limit is hit)
Users can mint new LP tokens or redeem them at the Virtual Price. However, when AUM limits are reached, new minting is disabled to cap the TVL. This usually leads to a premium for LP tokens compared to the virtual price.
You may sell your LP tokens for the Market Price at any time. If the Market Price is below the Virtual Price, your LP tokens are redeemed at the virtual price instead of being sold at the market price.
By contributing to Thetis liquidity pools, you can earn passive income while supporting the platform's liquidity and stability. The continuous compounding of yields and flexible liquidity management make Thetis a compelling choice for liquidity providers.
