Enhanced Liquidity Farming Approach
Last updated
Last updated
Through participation in HyperLaunch's liquidity provisioning, LPs not only stand to gain substantial earnings from transaction fees but are also eligible to receive additional rewards via liquidity farming.
In contrast to typical AMM decentralized exchanges that issue fungible LP tokens to their liquidity providers, HyperLaunch employs a distinct approach by granting unique LP NFTs for each liquidity position established within its protocol. These LP NFTs serve as a means to record pertinent information about liquidity positions, encompassing factors such as liquidity amount, price range, and fee tier.
Two distinct farming strategies are accommodated within our system. For trading pairs with activated farming options, our default approach aligns with the fee performance strategy. Under this framework, proficient LPs automatically enjoy farming incentives upon supplying liquidity, without the need to stake their LP NFTs. Alternatively, users can choose to stake their eligible LP NFTs within a farming pool utilizing the overlapping range strategy or partake in a third-party-operated farming pool, if accessible, to secure supplementary bonuses.
Within a focused liquidity protocol, only positions situated within active price ranges witness utilization by traders and consequently generate transactional fees. As such, the fee performance of each liquidity position proves to be an effective metric for gauging its tangible contribution to the protocol. This metric is instrumental in determining the default distribution of farming incentives.
At intervals, the system scrutinizes newly accrued fees from all positions within the CLMM pool and subsequently calculates the proportion of fees attributed to each user's liquidity position. Farming incentives are then disbursed to all LPs based on their proportional share of fee contributions.
Salient characteristics of this strategy include:
Utmost Equitability: The strategy's outcome-oriented nature ensures a fair and precise allocation of rewards, incentivizing liquidity providers who have made substantial contributions, particularly those whose liquidity is actively employed in swap transactions.
Mirroring Fee Earnings for Amplified Returns: The strategy effectively augments LPs' earnings from widely traded token pairs. These popular trading pools often boast high trading volumes, attracting skilled liquidity providers who adeptly adjust their price ranges to optimize their liquidity positions. The fee performance strategy augments these skilled users' earnings through farming incentives, making it an attractive proposition for experienced liquidity providers to partake.
This approach is particularly well-suited for stablecoin pairs or pairs tied to pegged assets. A defined reward interval will be established, and in the case of stable pairs, this interval will be centered around the value of 1 (e.g., 0.999-1.001). The system will analyze the reward interval in relation to the price range of the user's liquidity position, thereby ascertaining the precise eLP-Value for each individual's position. The HyperLaunch platform will employ the following default algorithm for this purpose:
The term "eLP Value" denotes the active liquidity value attributed to the NFT-based liquidity position, a pivotal factor in computing the distribution of rewards;
The symbol "L" or "Liquidity" signifies the amount of liquidity present within the respective NFT-represented liquidity position;
The variable "n" refers to the count of price increments encompassed within the segment of the reward range that aligns with the liquidity provision price range defined by the NFT;
Similarly, "N" signifies the total count of price increments within the entire reward range.
Utilizing their eLP values as a benchmark, each NFT is entitled to a corresponding proportion of rewards from each block:
Consequently, to optimize the effectiveness of your liquidity in generating farming rewards, the optimal decision is to allocate your liquidity within the associated reward range.
The overlapping range strategy embodies the subsequent features:
Comprehensiveness: Should a liquidity provider's liquidity position overlap, be it partially or entirely, with the reward range of the corresponding farming pool, they become eligible to receive supplementary farming rewards.
Effective bootability: Given an identical liquidity amount, aligning the liquidity position's price range precisely with the farming reward range for a specific pool results in the highest attainable eLP value. This signifies optimal reward-earning efficiency. This mechanism strategically incentivizes liquidity providers to channel their liquidity within the High-Efficiency range, thereby stabilizing the pool price or introducing a positive influence. In contrast to the prevailing approach of comprehensive-range liquidity farming commonly observed across conventional DEX platforms, HyperLaunch's NFT liquidity farming exhibits superior incentive efficiency.
