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ELP Liquidity Pools
Updated on June 9, 2023.
Holders of ELP tokens, who provide liquidity, serve a crucial role within the EDE ecosystem. Their contributions determine the maximum total open interest for the protocol and they bear the risks associated with trading activities. In recognition of their efforts, liquidity providers receive 45% of the trading fees and the profit and loss (PnL) generated by traders.
EDE developed a hybrid liquidity mechanism that allows ELP holders to provide liquidity through a smart router. The multi-asset ELP-1 pool is designed as a bundled index of top cryptocurrencies, enabling liquidity providers to participate in sharing protocol revenue while holding a diversified crypto index. Conversely, providing liquidity for the Synthetic ELP-3 pool carries no risk of holding cryptocurrencies, as it uses USD collateral by design.
The ELP-1 token represents an index of assets utilized for swaps and leverage trading. These tokens can be minted using any index asset and burnt to redeem any index asset.
There are two ELP pools containing different assets from which various ELP tokens can be minted, such as $ELP1, $ELP2, and $ELP3. While these two different ELP token types share the same functionality, they differ in potential revenue generation.
45% of the protocol revenue is allocated to ELP token holders and stakers. The earnings fee is reinvested into the ELP vault through the purchase and subsequent burning of ELP tokens. This action is carried out by the protocol on a daily basis.
In addition to this, ELP stakers are entitled to additional rewards in the form of $alphaEDE and $EDET tokens.
Note that the protocol revenue distributed is based on the number after deducting the network costs of keepers, keeper costs are usually around 1% of the total fees.
The keepers are price feed and position bots.
As ELP token holders provide liquidity for leverage trading, they will make a profit when leverage traders make a loss and vice versa.
El Dorado Exchanged is focused on not only offering a diverse range of assets to trade from, but also keeping assets segregated so higher risk assets are kept away from lower risk assets. To achieve this, there will be at least 2 different ELP's for liquidity providers to provide liquidity for. These are:
Each pool localizes the fees generated to the pool & gEDE lockers. Fees generated by $ELP-1 are not shared with $ELP-3.
Understanding ELP Staking APR
As an ELP staker, you are eligible for three types of rewards. These include 45% of the protocol fees, which are reinvested into the vault, and additional $aEDE and $EDET tokens that are granted to stakers based on community voting.
The APR (Annual Percentage Rate) is a reflection of these three distinct sources of earnings combined. This comprehensive structure ensures the maximization of your staking benefits
ELP isn't designed as just an indexed token comprising of different weights of different tokens, but also as the liquidity provider token for the EDE platform.
This means, when you hold ELP, you are exposed to several different risks, such as swaps arbitraging, traders profiting from longing or shorting assets, as well as general negative market movements which reduce the value of the underlying collateral.
It is advised you fully understand the risks first before providing liquidity on EDE.
Caution should be exercised when interacting with any smart contract or blockchain application. While risks are attempted to be mitigated through testing, audits and bug bounties, there is always a risk of vulnerabilities in smart contract code.