Liquidity Provision

The liquidity provision strategy in the OADA system can be viewed as a leveraged (around 2x) liquidity provision (LP) approach without incurring leverage costs. Essentially, the total amount of tokens deposited increases as prices move away from a central point in the stableswap curve, irrespective of the amplification parameter. This means that when deposits are made at a price close to 1:1 (the center of the Automated Market Maker, AMM), they benefit from the symmetry of the stableswap curve, ensuring they do not lose value due to rebalancing. This phenomenon is also known as having no impermanent loss.

To minimize the reserves needed for rebalancing, deposits are strategically made near, but not exactly at, the center of the stableswap curve. Numerical analysis, which factors in a 0.1% swap fee, shows that these deposits still avoid losses. However, if rebalancing occurs directly to the perfect center, it can incur a loss, especially for pools with high amplification factors (e.g., 100, 150, 200). Therefore, deposits must be made within a price range of 0.999 to 1.001 ADA per OADA to ensure that 1 OADA is not sold for less than 1 ADA. This range is slightly adjusted to account for protocol fees and error margins.

There exists a narrow price range where the protocol cannot deposit or adjust the price. However, this range is not profitable for potential attackers and does not pose a risk to the system. The withdrawal process, on the other hand, does not have these constraints, ensuring flexibility and safety for liquidity providers.

By carefully managing the liquidity provision strategy, the OADA system can maintain an efficient and balanced liquidity pool. This approach leverages the stableswap curve's properties to enhance liquidity provision without exposing participants to impermanent loss. The system's ability to deposit within a safe price range ensures that liquidity providers can confidently participate without the fear of losses due to rebalancing.

In summary, the OADA system's liquidity provision strategy offers a leveraged approach that maximizes token deposits while minimizing risk. The precise management of deposit ranges and the absence of impermanent loss make it an attractive and robust option for liquidity providers, ensuring the stability and profitability of the OADA ecosystem.

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