Providing Liquidity / Yield
Last updated
Last updated
In Gemnify, users can participate as liquidity providers, contributing stablecoin funds to the liquidity pool to facilitate trading and earn rewards from fees collected through leverage trading. Users are able to receive more ULP tokens by adding USDC liquidity.
The ULP token serves as the liquidity provider token on Gemnify. ULP tokens are minted by providing stablecoin to the pool as liquidity. The ULP price for minting and burning is calculated based on (total worth of assets under management including PnL) / (ULP supply).
Minting ULP tokens by depositing assets will occur on Layer 2. Please ensure you have sufficient ETH in your wallet on Arbitrum for paying transaction fees.
Navigate to Earn page, browse to the 'Liquidity Management' section.
Select the token you want to deposit and enter the amount.
Users are able to receive more tokens for helping the protocol balance pool and move the token towards its target weight. The reward is displayed as Bonus.
Gemnify incentivizes users to balance the liquidity pool and adjust the token weight towards its target. By balancing the liquidity pool, users earn the right to receive a reward bonus, which grants them additional LP tokens. For example, if the USDC/ULP price is 1.0000 and a user adds liquidity of 100 USDC, they would usually receive 100 ULP (excluding fees). However, with the reward bonus, the user receives 101 ULP.
Enter the amount of ULP you want to burn and confirm the basket of stablecoins to receive.
Please note, to maintain pool balance and prevent depletion of any single asset, LPs remove liquidity by exchanging ULP for every stablecoin in the protocol.
Your ULP tokens are automatically staked when you provide liquidity and can be automatically unstaked and sold by removing liquidity.
Liquidity providers earn rewards from collected fees, including 'position fee' and 'borrowing fee'. These fees will be divided into two parts: a portion will be allocated as rewards, distributed periodically (7 days for now) to LPs based on their ULP holdings, and the remaining portion will contribute to the treasury fund.
After ULP tokens are minted, they are automatically staked to earn rewards denominated in USDC, which are collected from various fees. Users can choose to claim these rewards at any time or compound them by providing them as liquidity to acquire more ULP. The process of both staking and unstaking is seamlessly integrated into the buy and sell ULP transactions, eliminating the need for additional transactions.
Users managing liquidity, whether depositing or withdrawing, is basically swapping with the liquidity pool of assets and ULP tokens.
Despite the reward bonus that incentivizes users to help balance the liquidity pool by adjusting the asset weight towards its target, the deposit fee is also reduced (sometimes as low as 0) when the pool is more balanced.
For liquidity withdrawal, since a basket of assets is withdrawn each time a user removes liquidity, the protocol calculates the fee for each asset separately. For each token, the protocol assesses whether the withdrawal helps move the token weight towards the target weight. If it does, a discount will be applied to the fee for that token, potentially reducing it to 0. If it doesn’t, the protocol calculates the fee and compares it with the fees of the other tokens. The final fee will be the highest among the basket.
