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Liquidity Providers (LPs)

As a liquidity provider, you help other users execute their trades. In return, a 0.3% fee is distributed pro rata to all LPs in the pool. Each dominance pair has two corresponding liquidity pools:

  • BTCDOM / USDC
  • invBTCDOM / USDC

Adding Liquidity​

To add liquidity to a pair, click the gold LIQUIDITY button and select Deposit. The USDC you supply will be used to mint and pool an equal number of BTCDOM and invBTCDOM tokens. If possible, this will also arbitrage the pools to increase your deposit's value.

Screenshot of Liquidity Modal's Deposit state

Adding Unbalanced Liquidity​

To add liquidity only to a single pool, click the gold LIQUIDITY button, select Pools, and select Add. Please note that you will need to have already bought or minted BTCDOM and/or invBTCDOM tokens.

Screenshot of Liquidity Modal's Long and Short states (BTCDOM)

Concepts​

Impermanent Loss (IL)​

Each liquidity pool maintains two equally-valued reserves of tokens and USDC. As users buy and sell tokens, changing the price of a token, the pool is on the "wrong side" of the prevailing trades. If the price change outweighs income from trading fees, depositors experience impermanent loss (IL). Domination Finance exposes providers to less IL than other platforms because

  • Our tokens have defined price ranges, so large price swings are less likely to occur.
  • Long and short tokens are inversely correlated, so dual-sided liquidity providers have an unusually flat IL curve.

Please take some time to understand impermanent loss, especially if you plan to deposit single-sided liquidity. You can learn more about IL here.

Arbitrage​

Each Dominance Pair requires a certain amount of collateral to mint tokens. For instance, 100 USDC is required to mint 1 BTCDOM and 1 invBTCDOM, and redeeming those two tokens returns 100 USDC of collateral. If the liquidity pools allow you to buy 1 BTCDOM and 1 invBTCDOM for less than 100 USDC, or sell 1 BTCDOM and 1 invBTCDOM for more than 100 USDC, there is an arbitrage opportunity. When you deposit liquidity, the Vault contract executes any possible arbitrage and adds the profit to your deposit.

Price Deviation​

Price deviation is the percent difference between the sum of the pool prices and the actual collateral per pair. When it is nonzero, there is an arbitrage opportunity. Adding liquidity when there is significant price deviation increases the arbitrage opportunity, reducing the value of your deposit. When adding liquidity, setting a maximum price deviation protects you from sudden price changes.

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