Liquidity provision
TVL - total value of liquidity locked inside the pool. It changes when liquidity is withdrawn or deposited to the pools.
Balance - the current liquidity in the pool. This value varies as a result of the bridging activity, i.e., when the assets are bridged in or out of the pool.
APR - estimated yearly return on liquidity provided, based on the past bridging activity.
Equilibrium - the case when the pool’s Balance equals its TVL.
Imbalance - occurs when Balance deviates from the TVL.
Deficit - the state when the pool’s Balance is lower than the TVL (caused by bridging the assets out of the pool).
Surplus - the state when the pool’s Balance is higher than the TVL (caused by bridging the assets into the pool).
Penalty (withdrawal penalty) - additional cost incurred if the LP is withdrawing the liquidity at the time when the pool is out of equilibrium state.
Your LP - LP tokens deposited to the pool (excluding the rewards).
Earned - rewards on liquidity provided. They will be credited to your wallet during any operation involving the liquidity pool (i.e., depositing, withdrawing, claiming).
The pool’s Balance is the representation of the bridging activity. Every time the assets are bridged into or out of the pool, they adjust the Balance.
More assets bridged out of the pool create a deficit (the Balance becomes lower than TVL). In contrast, when more assets are bridged into the pool, it creates a surplus in the liquidity calculations.
Example: Let’s consider a pool with $100k deposited, Polygon USDC, for example. Initially, it has a TVL of 100k and a Balance of $100k. If $10k was bridged from it to a different chain, this value would be added as Balance. The TVL remains $100k, while the Balance adjusts to $110k.
This event causes the pool’s equilibrium to go out of balance, and the USDC’s virtual price will decrease accordingly, making it more expensive to bridge out of the pool. Bridging $10k back to the pool would result in Balance changing back to 100k, restoring the equilibrium state.
APR represents an estimated return on liquidity provision to each Allbridge Core pool. The LP incentives come from the bridge fees (80% of bridge fees are used to reward the liquidity providers).
For this reason, the value of APR is dynamic, and the APR calculations are based on past bridge activity. Thus, the actual rewards may differ from the indicated APR, and this value should be perceived as a reference.
We are currently working on implementing the additional details section to track the bridge fees from last week to indicate the pool’s dynamic better.
If the pool is out of equilibrium, the LP will be charged a penalty for withdrawing the liquidity, both in the instances of pool surplus and deficit. The liquidity could be redeemed 1:1 only in the equilibrium state.
Example: The pool is in deficit. The liquidity provider withdraws the original liquidity + the LP rewards - the penalty.
Example: The pool is in surplus. The liquidity provider withdraws the original liquidity + the LP rewards - the penalty.
Example: The pool is in equilibrium. The liquidity provider withdraws the original liquidity + the LP rewards.
Depositing the liquidity when the pools are imbalanced will reward the LP with an additional premium when withdrawing in equilibrium. The penalty still applies in the instances of pool surplus/deficit.
Example: The pool is in deficit. The liquidity provider deposits the liquidity and receives additional LP tokens. After the pool reaches an equilibrium, the liquidity provider will withdraw the original liquidity + deficit premium + LP rewards.
Liquidity rebalancing is a mechanism that offers additional incentives for bringing the pool back to the equilibrium value.
When the pools are out of balance, the platform provides a premium for bridging the asset to an imbalanced pool.
Last modified 3d ago