Liquidity Pool
The Dexodus protocol is powered by a Weighted Liquidity Pool that serves as the backbone for all perpetual markets on the platform. This unique pool is carefully designed to maintain stability, optimize liquidity, and ensure fairness for liquidity providers (LPs) and traders alike.
Overview
The Weighted Liquidity Pool operates by managing liquidity contributed in native ETH (automatically wrapped into WETH upon deposit) and USDC, maintaining a target weight between the two assets based on their USD value. This design ensures a stable and balanced liquidity source for perpetual trading.
Key Features
Native ETH Deposits:
Liquidity providers can deposit native ETH directly into the pool.
ETH is automatically converted into WETH to integrate seamlessly with the pool mechanics.
Flexible and Locked Liquidity Options:
LPs can choose between:
Flexible Liquidity: Deposit and withdraw at will.
Locked Liquidity: Commit liquidity for longer durations with enhanced rewards, represented by "animal tiers" that correspond to different locked amounts and timeframes.
Auto-Compounding Rewards for Liquidity Providers:
All rewards earned by liquidity providers, including fees from trading activities, are automatically compounded back into their liquidity provision.
LPs do not need to manually claim or redeposit rewards, allowing them to maximize their yield and reduce operational overhead.
Auto-compounding ensures that liquidity grows proportionally, enhancing the pool’s stability and LP returns over time.
Targeted Rebalancing:
The pool periodically rebalances its holdings to maintain a target USD weight between WETH and USDC.
This ensures adequate exposure to both assets and stabilizes the pool’s overall value.
PnL Payouts in USDC:
Traders closing positions with positive PnL are paid out in USDC.
To facilitate this, the pool converts WETH into USDC when necessary, ensuring smooth payouts and sufficient reserves.
Controlled Pool Token Minting/Burning:
Pool tokens can only be minted or burned by the contract itself, ensuring liquidity integrity within the protocol.
Rebalancing Strategy
The Weighted Liquidity Pool continuously monitors its WETH and USDC balances.
Adjustments are made periodically to ensure the target USD weighting is maintained:
Excess Assets: If either asset exceeds its target, the pool swaps excess holdings to rebalance liquidity.
Optimized Stability: This mechanism ensures liquidity is always available for trading activity, regardless of market conditions.
How It Powers Dexodus Markets
The Weighted Liquidity Pool is essential for enabling Dexodus' oracle-based perpetual trading. By providing a stable, optimized liquidity foundation, the pool ensures:
Smooth Market Functionality: Liquidity is always available to handle trading volume efficiently.
Stable PnL Settlements: USDC reserves are maintained for trader payouts.
Market Resilience: The rebalancing mechanism adapts to market fluctuations, maintaining a reliable trading environment.
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