LogoLogo
LogoLogo
  • Vela Trade
    • Introduction
    • Getting Started
    • FAQ
    • Technical Architecture
      • Pool-to-Peer Mechanism
      • Liquidity Providing
      • VLP Token
        • Minting and Burning VLP
        • VLP
      • Pricing Engine
      • Virtual PNL Delay
      • Crypto Asset-Backed Pools
      • Fee Distribution
    • Perpetuals Specifications
      • Collateral Specification
      • Fees
      • Stop Loss/Take Profit Orders
      • Limit Orders
      • Liquidation
Powered by GitBook
On this page
  1. Vela Trade
  2. Technical Architecture

VLP Token

To provide liquidity on Vela Trade, users can deposit USDC or wBTC into the Vela Trade Liquidity Pool (VLP) by minting VLP tokens. In return, users receive VLP tokens that represent their share of the pool, with the value of the VLP tokens corresponding to the net asset value (NAV) of their deposit.

When a user deposits into the VLP, they relinquish direct exposure to the specific assets they deposited (either USDC or wBTC) and instead gain exposure to the performance of the VLP as a whole, which holds both assets in a dynamic ratio. The VLP token reflects this pooled exposure, allowing users to participate in the overall returns of the liquidity pool.

For example, if a user deposits only wBTC into the pool, they will gain exposure to the overall asset composition of the VLP, which includes wBTC (20%), USDC (80%) at optimal target ratios. As deposits, withdrawals, and market price movements occur, the ratio of assets in the VLP will adjust dynamically.

Dynamic Asset Ratios and VLP Token Exposure

The VLP token represents a diversified index-like exposure to the assets in the pool. The target ratio for each asset is:

  • wBTC: 20%

  • USDC: 80%

These ratios are dynamic, adjusting as new liquidity is added or existing liquidity is withdrawn. The exposure in the pool will always strive to stay within these optimal targets, but fluctuations may occur due to market changes or new deposits/withdrawals.

Fees for Minting and Redeeming VLP Tokens

Every time a user mints or redeems VLP tokens, a small fee is incurred. This fee is dynamic and varies based on the asset ratios within the pool.

  • When an asset in the pool is below its target ratio (i.e., the actual ratio is lower than the target), the pool is considered to be underweight in that asset, and actions that exacerbate this discrepancy incur higher fees.

  • Conversely, if actions reduce the discrepancy between the actual and target ratios (i.e., bring the pool back into balance), lower fees are charged.

These fees help maintain balance and efficiency within the VLP, ensuring that liquidity provision remains sustainable and fair for all participants.

PreviousLiquidity ProvidingNextMinting and Burning VLP

Last updated 17 days ago