Liquidity Fees
Provide liquidity to perp markets and earn fees.
Overview
When providing $USDⒼ (Carbon grouped USD token) liquidity to the perpetual pool, liquidity providers will receive a liquidity pool token (CPLT), which represents their share of the perpetual pool. As the perpetual pool attracts and accrues various fees, the value of each CPLT increases.
Mechanism
The liquidity pool (and therefore the CPLT) earns (or loses) from:
Traders: By acting as the counterparty to traders, the perpetual pool earns whenever its net position is in the same direction of market movements. This implies that whenever traders that take perpetual pool quotes have a negative PnL, CPLT token holders are in a profitable position. Conversely, when these traders have a positive PnL, CPLT token holders will have a negative PnL.
Borrow fees: Traders who take quotes from the perpetual pool are essentially borrowing from liquidity providers and therefore pay borrow fees. This borrow fees are charged as part of the perp funding rate, and will grow over time for as long as the perpetual pool holds a position. This encourages the perpetual pool to be delta-netural, and will incentivizes arbitraguers to take the opposite side of the trade, essentially closing off the perpetual pool's position.
Maker rebates: The perpetual pool module is given the highest tier of fees. Because the perpetual pool always acts as a market maker, it also receive a portion of the taker's trading fee as a maker rebate (via negative maker fees).
Deposit / redemption fees: The perpetual pool module may enable fees for minting and redemption of CPLT tokens. The fees are retained by the perpetual pool, such that all prior / remaining holders of CPLT tokens gain these fees pro-rata.
The borrow fees and maker rebates are typically sufficient to counteract any losses incurred by the vaults position.
These rewards are auto-compounded into the CPLT such that it is a value-accruing token that appreciates over time (unless traders achieve a net gain).
CPLT Value
The value of the CPLT token is determined by the quantity of USDⒼ and LP tokens present in the perpetual liquidity pool at any given moment, where:
The amount of CPLT minted or redeemed does not directly impact the value of CPLT. However, it does have an effect on the rate at which the price of CPLT fluctuates.
Note: There are no liquidation fees for perp trading at the moment, but this can be enabled at a future date to allow liquidation fees to go to CPLT.
Example
Consider the scenario where you contributed 1000 USDⒼ into the perpetual pool to mint 1000 CPLT tokens at the price of $1 each. As more USDⒼ is supplied to the perpetual pool over time, the price of the CPLT may increase to $1.50 per token. If you decide to withdraw your liquidity and redeem your 1000 CPLT tokens at this point, their value would be 1500 USDⒼ, indicating a 50% profit on your initial investment.
Depositing
By depositing your USDⒼ liquidity into the perpetual liquidity pool, you receive a proportional amount of CPLT which reflects your share of the perpetual liquidity pool.
To mint CPLT, you must
Bridge USDC from any ecosystem to Carbon, which will be auto-converted to the Carbon Grouped USD token (USDⒼ) on the UI
Contribute USDⒼ liquidity to the perpetual liquidity pool
A fee may apply for depositing USD liquidity / minting LP token.
Supply Cap
USDⒼ deposits are generally available unless the supply cap is reached, which is a precautionary measure put in place to avoid having too many deposits during the initial phase.
Redeeming
Liquidity providers can withdraw their USD liquidity from the perpetual liquidity pool (and return the LP tokens) so long as they pay the relevant withdrawal fees, and sufficient funds are available.
A fee may apply for withdrawing USD liquidity / redeeming LP tokens.
Waiting Time
The waiting time for withdrawals is dependent on whether sufficient funds are available:
1. Sufficient Funds Available
To ensure the security of the perpetual liquidity pool, immediate withdrawal of assets is not permitted; As withdrawals are processed only at the end of each block, there will always be a waiting time of one block (~2s).
This protects the perpetual liquidity pool against sudden liquidity drains, and prevents stakers from front-running PnL changes.
2. Insufficient Funds Available
If the funds are currently being utilized as liquidity, there may be insufficient available funds in the perpetual liquidity pool for you to withdraw.
When the utilization rate of the perpetual liquidity pool is high, a high borrow fee will be charged to encourage traders to close their positions. Once the positions are closed, more funds will become available for withdrawal.
Visit Carbonscan to view the borrowing fee details.
Risks
There are risks involves when you participate in perpetual pools.
Smart Contract Risk: There will always be certain inherent risks associated with any smart contracts.
Market Risk: Should traders win (positive PnL), those profits will be paid to them out of the perpetual liquidity pool.
Depegging Risk: In the unlikely scenario that $USDC loses its peg, the LP token will be directly impacted.
Contract Address
Perpetual Liquidity Pool Contract Address: 0x5957582F020301a2f732ad17a69aB2D8B2741241
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