Liquidity Providing
Liquidity is added to the pool by liquidity providers (LPs). Each trade that passes through Flash protocol generally incurs a variety of dynamic fees and LPs will earn their pro-rata share of these fees. The fees involved in this platform include open/close position fees, margin fees, add/remove liquidity fees, and swap fees. Additionally, when processing liquidations any collateral that is left over once the position is closed will be given to LPs as fees. Thus, LPs will have the opportunity to generate yield on their underlying assets which otherwise would be sitting dormant.
When a user provides liquidity to the main pool they will be in a pool consisting of 4 tokens: BTC, ETH, SOL, and USDC. Each of the token has a target weight, min ratio, and max ratio. The token representing the main Flash Liquidity Pool is FLP.1. There is also FLP.3 which represents our Solana Beta pool and functions similar to Pool 1.
FLP.1 TOKEN BALANCES
BTC
20%
10%
30%
ETH
10%
6%
20%
SOL
25%
20%
40%
USDC
45%
35%
55%
FLP.3 TOKEN BALANCES
JUP
20%
10%
40%
JTO
15%
10%
20%
RAY
5%
2%
12%
KMNO
15%
5%
20%
PYTH
2%
1%
10%
W
3%
1%
10%
USDC
40%
30%
50%
Note: The revenue generated by the liquidity pools will be given out separately to LPs in USDC and the price of FLP token would only reflect the price of the underlying assets only, hence FLP LPs returns will, in the long run, be similar to an index token that generates passive yield.
How APRs are displayed on Flash Trade's Earn page
There are two numbers displayed on Flash's earn page. The first one before hovering over is the annualized return experienced by LPs for the previous day. The number displayed when hovering over is the annualized return experienced by LPs for the previous week. Risk in providing Liquidity to Flash Liquidity Pools
These are the following risks LPs take on when providing to liquidity pools on Flash.
Trader Utilization Risk: In a Pool-to-Peer system, LPs are constantly borrowing exposure to their assets appreciation in exchange for trading fees (both open/close and margin fees). This implies that LPs serve as the counterparty to traders on average. It is possible for traders to be on the right side of trades across relatively long times (months) but in the long run, Flash's fee structure and pricing engine will not allow for profits in the long run.
Asset Depreciation Risk: Since FLP is made up partially of crypto currency assets, its value will fluctuate with the prices of those assets. There is Trader Utilization Risk as described above that will amplify or mitigate this effect in the short-term but in the long run, if crypto prices increase, LPs returns will follow and vice-versa.
Latency Risk: In the case that the used oracle is providing a delayed price, a trader may be able to overcome the fee structure to provide themselves with consistently +EV trades. Flash's internal risk systems monitors all traders for behavior that would signify this is happening and adjust fees and spreads to ensure such trading is not possible.
Smart Contract Risk: There is a possibility of on-chain contract logic being exploited. The team's code has been double audited in order to lower this possibility as much as possible.
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