Pooling: A Better Way of Providing Liquidity

Our pooling feature is designed as a superior form liquidity provision. Users not only can earn LP fees while gradually DCA’ing out of their positions, ensuring a structured and sustainable exit, but the extracted stablecoins are pulled directly from the LP, preventing losses due to market downturns. Additionally, these DCA’d stablecoins are immediately deployed into high-yield lending, maximizing capital efficiency.

Liquidity pools in the protocol serve two primary functions:

Facilitating managed exits for TOKEN holders – Holders can gradually dollar-cost average (DCA) out of their position in a structured liquidity provision (LP) model.
Providing high-yield lending opportunities – The DAI extracted from the DCA process is lent to borrowers at competitive interest rates.

Mechanics of Liquidity Provision

Users single-sided deposit TOKEN into a shared liquidity pool. This pool operates within a price range of SPOT to 2x SPOT. Periodically, a portion of the pool’s buy pressure is converted into DAI, while the LP position is rebalanced to the current spot price.

Benefits for Liquidity Providers

Liquidity providers (LPs) receive several key advantages:

Interest revenue from borrowers: As users borrow against the deposited TOKEN, LPs earn interest. This revenue scales exponentially with borrowing demand—when demand is low, minimal incentives are needed, but when demand increases, higher rewards attract additional liquidity.
Trading fees from liquidity provision: LPs earn a share of trading fees generated within the pool.
Automatic DCA into DAI: LPs can gradually convert their TOKEN holdings into DAI without causing abrupt market impacts.
Enhanced borrowing limits: By participating as LPs, users can unlock higher borrowing limits within the collateralized debt position (CDP) markets for TOKEN.

Market Impact

This mechanism has a subtle but significant effect on TOKEN’s market dynamics. By unlocking additional borrowing capacity and ensuring that liquidity providers only sell in a controlled manner during price increases, the system reduces overall selling pressure while increasing net buying activity. This increases the probability of sustained price appreciation.

Risk Considerations

The risk to autonomous LPs is minimal, as the process mirrors a structured DCA strategy. LPs systematically reduce their TOKEN holdings over time while benefiting from yield and increased borrow demand, ensuring sustainable liquidity management.