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LPs are the core of Aark, creating the foundation on which traders and market makers deploy strategies.
Aark Digital leverages a unique virtual liquidity pool model that redefines how Liquidity Providers (LPs) interact with the DeFi ecosystem. Instead of directly depositing assets into the pool, LPs open positions that indicate their share of the total liquidity, using deposited assets as collateral. This approach impacts the LP's account value based on the associated fees, such as trading and funding fees, ultimately influencing the LP's USDC balance and the liquidity pool's overall size.
Utilizing Aark's PMM architecture, liquidity providers on Aark Digital benefit from several features:
- Leveraged LP (increased APR)
- Single-sided & delta-neutral LP
- No Impermanent Loss (IL)
- Funding fees
LPs on Aark Digital can earn increased yields without suffering impermanent loss or converting their assets. This means that LPs can deposit ETH, BTC, or stETH and earn single-sided and delta-neutral yield while retaining custody of their assets. In addition, this yield does not come from inflationary emissions but from the actual trading activity on our platform. By providing liquidity, LPs earn from trading fees, funding fees, and the losses of unprofitable traders.
- 1.Opening Positions: LPs open positions by depositing assets as collateral. The value of an LP's account is affected by the associated fees, such as trading and funding fees.
- 2.Virtual USDC Balance:
- The liquidity pool is denominated in USDC. PnL from trading and funding fees is cash-settled and pegged to USDC. Assets are NOT converted into USDC at any time.
- It's important to note that if the sum of USDC balances across all users exceeds the actual USDC balance in the protocol, the excess amount cannot be withdrawn. However, the peg to USDC remains stable due to other collaterals (assets) deposited by users.
- 3.Price Pegging Mechanism:
- The USDC balance is maintained at its peg to USDC through over-collateralizing users' negative USDC balances, treated as debts owed to the protocol - users' collaterals back this over-collateralization.
- In essence, the USDC balance is a form of collateralized debt position. If the collateralization ratio falls below a certain level, liquidators will liquidate a portion of the collateral to maintain the over-collateralization.
Aark's virtual liquidity pool model revolutionizes the interaction between LPs, traders, and the DeFi ecosystem. By opening positions instead of directly depositing assets, LPs can better manage their exposure and benefit from the associated fees. At the same time, the protocol ensures solvency and stability through a robust price-pegging mechanism.