Liquidity Pools
This section provides an overview of the Isolated Liquidity Pools on RFX.
Last updated
This section provides an overview of the Isolated Liquidity Pools on RFX.
Last updated
Overview
Liquidity providers are counter parties to all traders and therefore take on the profits and losses of traders for the market that they provide liquidity for. Markets on RFX are synthetic and each market is supported by a separate liquidity pool. Markets / pools are created by specifying a long collateral token, short collateral token and market token. For example:
ETH/USD market with long collateral as ETH, short collateral as a stablecoin, market token as ETH
BTC/USD market with long collateral as ETH, short collateral as a stablecoin, market token as BTC
SOL/USD market with long collateral as ETH, short collateral as a stablecoin, market token as SOL
The long collateral token is used to back long positions, while the short collateral token is used to back short positions. The market token represents the underlying price feed used to settle trades for the market.
Having separate pools for each market allows for risk isolation, liquidity providers are only exposed to the markets that they deposit into, this architecture also powers permissionless market listings.
Collateral Types
Markets primarily use wETH and USDC as collateral. An exception to this is the ZK/USD market which can be traded using ZK and USDC.
Traders can switch between their desired liquidity pool and optimise for cost, as each pool may charge different fees, and funding rates.
Adding Liquidity
Liquidity providers can deposit either the long or short collateral token or both to mint liquidity tokens (RP, i.e. RFX Pool) from the .
Deposits are subject to positive or negative slippage depending whether your deposit increases or decreases the ratio of long and short collateral tokens in the pool. RFX uses positive slippage to incentivize people to balance the pool. For example: when there is a lot of short tokens but not a lot of long tokens deposited, RFX incentivizes depositors to get a boost to balance the market so that people can open both long and short positions at an equal magnitude. On the contrary negative impact is to disincentivize people who are depositing USDC when there is a lot of USDC.
Liquidity providers can remove liquidity by swapping their RP tokens in return for their collateral from the .
While LPs can specify the ratio of long and short collateral tokens they would like to receive in return for the RP tokens, any withdrawal that increases the imbalance of long and short tokens in the pool will incurr slippage. The liquidity pools are configured to return collateral tokens in a ratio that preserves or improves the balance of long and short collateral tokens in the pool so as to offer LPs the best possible price when withdrawing liquidity.
This may result in LPs receiving collateral tokens in a different ratio to the one they may have used to deposit liquidity.
Note: since liquidity in a market is reserved based on the total open interest of the market, the liquidity available for redemption is capped at the tokens in the pool multiplied by the pool's reserve factor minus the tokens reserved. If this capacity is reached, liquidity providers would need to wait for positions to close before selling RP tokens or for liquidity to be deposited by other providers. The borrow fee rate in this case would also be higher which should help to incentivise deposits.
RP Token Pricing and APRs
Holders of the RP token have a proportional ownership stake in the entire pool of assets. These tokens represent an individual's proportional share of the fees earned by the liquidity pool as well. The value of the market token is typically determined by the total value of assets held in the pool and can fluctuate based on changes in asset prices or trader PnL within the pool.
At launch 70% of all fees generated go directly to LPs, with 10% going towards an Insurance Fund, 5% towards trading fee rebates, 5% towards the RFX Treasury to subsidise operational costs, and 10% towards the RFX Referral Program.
The APR indicated on the RFX represents the 7 day average APR for that pool, which is calculated by factoring in fees generated from perpetuals trading, spot swaps and liquidations. The value of the RP Token will increase in value as fees generated by the pool increase and/or if the underlying long collateral token goes up in value.