LP Incentives: Everything you need to know
NOTE: Since the launch of Mycelium Perpetual Swaps on Arbitrum, we have changed our fees to be cheaper and more transparent. An updated version of this blog post with the correct fee information is here.
We’re launching Perpetual Swaps in August 2022
Following on from our first product launch Perpetual Pools, Mycelium is excited to be adding another suite of derivative contracts to our platform: Perpetual Swaps.
Traders on the platform can enjoy trading leveraged positions with extremely low entry and exit fees (0.03% of notional value) with no price impact on a range of assets: BTC, ETH, LINK, BAL, FXS, & CRV!
We know the number one priority for our traders is trading with liquidity, so we’re looking to bootstrap our Liquidity Pools and incentivise quality LPs to help deliver the best trading experience in DeFi.
Our mechanism is optimising returns for our LPs. 70% of fees generated are rewarded to MLP holders, 10% to Mycelium, 10% for rewards, and 10% to our active traders.
What LPs can expect from providing liquidity?
Fee Split: 70% of all trading fees
Targeted Yield: 25% APR for first month of the protocol
ETH Rewards
We pay rewards in ETH. The trading fees are paid in USDC or the base asset. The protocol continuously swaps the base asset (or USDC) to ETH internally via the AMM. Trading fees are converted from whatever asset they currently are, to ETH each week and distributed to LPs weekly.
How does the Liquidity Pool and Rewards work?
Our liquidity pool is a basket of blue-chip assets and stablecoins pooled together, which acts as a global AMM for leveraged trading. Liquidity providers can deposit any whitelisted asset into the MLP pool in return for MLP tokens, which represent the LPs share in the diversified liquidity pool.
Additionally, LPs are incentivised to redeposit their ETH rewards over time using the ‘compound’ function, which allows LPs to earn MLP rewards at a compounding rate.
Liquidity providers can deposit any of the whitelisted MLP assets for traders to trade against. Fees for depositing MLP assets are dynamic to incentivise the pool to stay in line with its target. The graphic below outlines the target weights of assets in the MLP pool:
How do we calculate rewards?
For the first month of Perpetual Swaps launch, we will be boosting MLP returns to a targeted 25% APR through esMYC (escrowed MYC) distributions. The following month’s APR will be boosted to a targeted 20%. The esMYC will vest into MYC linearly over 6 months.
The boosted APR is inclusive of ETH rewards, so if the ETH rewards APR is greater than the targeted APR, no esMYC will be distributed.
LP MEV Protection
We have contracted a proprietary trading firm to minimise any losses from the frontrunning of the oracle updates. Currently, LPs are subject to stale oracle prices which can cause an effect similar to impermanent loss in AMMs. With stale prices, fast traders have an advantage to make trades with the LP pool knowing the future price of the asset will be in their favour. To counteract this behaviour, protect and reward our LPs, the trading firm will be extracting any value from latent oracle feeds and returning profits to our LPs. This way, in the event that the liquidity pool has a stale price, 80% of the profits from Oracle Extractable Value will be distributed back to the liquidity providers.
Additionally, the proprietary trading firm will be conducting price (backrunning) arbitrage between the Mycelium AMM and other spot AMMs. Despite none of this value being extracted from liquidity providers, 80% of the profits will be distributed back to the liquidity pool!
MLP vs. MYC?
MLP is our liquidity provider token: LPs accrue 70% of the revenue fees, and can expect a 25% APR distributed.
MYC is our governance and utility token. 10% of trading fee proceeds are used to buyback MYC on the open market, shoring up buy pressure for the token.
Things to remember
Given the volatility of TVL in the liquidity pool, it will be difficult to consistently deliver the targeted APR to liquidity providers over the incentivised period. It is possible that some weeks will slightly undershoot the target, and some weeks will slightly overshoot the target.
Makers 🤝 Mycelium Perpetual Swaps
Trade with liquidity: our LPs are incentivised with competitive APRs
Trade with leverage: up to 30x
Trade with low fees: 0.03% entry and exit fees
Trade with low latency: optimised node infrastructure and connectivity to minimise latency
Need more information about the mechanism? Read our docs here.
Are you a trader? Please provide feedback here.
