Earnings
Summary
When depositing liquidity to perp pools, you receive LP tokens (CPLT) that represent the share of your liquidity in the perp pool. They accrue value natively through several ways:
Trader's losses; Traders who realized losses when trading against the perp pool
Borrow fees; Traders pay funding fees, which are comparable to interest rates.
Maker rebates; Traders act as market makers and in return receive a rebate for providing liquidity to be taken by traders.
Deposit / redemption fees; LPs who withdraw pay fees to remaining LPs.
As the perpetual pool attracts and accrues the various fees above, the value of each CPLT increases.
As value accrues directly to the pool, earnings are realized by having more USD redeemable per LP token.
Additional Incentives
External rewards may also be given to users who stake their perp pool tokens. By staking, you earn additional incentives to enhance your yield from your liquidity provision, on top of the regular fees above that you are earning.
Remember to check if your pool has additional incentives when depositing!
Details
The liquidity pool (and therefore the CPLT) earns (or loses) from:
Traders: By acting as the counterparty to traders, the perpetual pool earns whenever its net position is in the same direction of market movements. This implies that whenever traders that take perpetual pool quotes have a negative PnL, CPLT token holders are in a profitable position. Conversely, when these traders have a positive PnL, CPLT token holders will have a negative PnL.
Borrow fees: Traders who take quotes from the perpetual pool are essentially borrowing from liquidity providers and therefore pay borrow fees. This borrow fees are charged as part of the perp funding rate, and will grow over time for as long as the perpetual pool holds a position. This encourages the perpetual pool to be delta-netural, and will incentivizes arbitraguers to take the opposite side of the trade, essentially closing off the perpetual pool's position.
Maker rebates: The perpetual pool module is given the highest tier of fees. Because the perpetual pool always acts as a market maker, it also receive a portion of the taker's trading fee as a maker rebate (via negative maker fees).
Deposit / redemption fees: The perpetual pool module may enable fees for minting and redemption of CPLT tokens. The fees are retained by the perpetual pool, such that all prior / remaining holders of CPLT tokens gain these fees pro-rata.
The borrow fees and maker rebates are typically sufficient to counteract any losses incurred by the vaults position.
These rewards are auto-compounded into the CPLT such that it is a value-accruing token that appreciates over time (unless traders achieve a net gain).
CPLT Value
The value of the CPLT token is determined by the quantity of USDⒼ and LP tokens present in the perpetual liquidity pool at any given moment, where:
The amount of CPLT minted or redeemed does not directly impact the value of CPLT. However, it does have an effect on the rate at which the price of CPLT fluctuates.
Note: There are no liquidation fees for perp trading at the moment, but this can be enabled at a future date to allow liquidation fees to go to CPLT.
Example
Consider the scenario where you contributed 1000 USDⒼ into the perpetual pool to mint 1000 CPLT tokens at the price of $1 each. As more USDⒼ is supplied to the perpetual pool over time, the price of the CPLT may increase to $1.50 per token. If you decide to withdraw your liquidity and redeem your 1000 CPLT tokens at this point, their value would be 1500 USDⒼ, indicating a 50% profit on your initial investment.
Risks
There are risks involves when you participate in perpetual pools.
Smart Contract Risk: There will always be certain inherent risks associated with any smart contracts.
Market Risk: Should traders win (positive PnL), those profits will be paid to them out of the perpetual liquidity pool.
Depegging Risk: In the unlikely scenario that $USDC loses its peg, the LP token will be directly impacted.
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