Liquidity provision

Overview

ZLP and degen pool are like a collection of assets you can use for swapping and trading with leverage. Users can mint ZLP or degenLP using any asset in the pool and burn it to redeem any pool asset. The ZLP/degenLP price is determined by dividing the total value of the assets in the pool (including gains and losses from open positions) by the existing ZLP or degenLP supply.

LP token holders enjoy benefits like earning escrowed ZKE rewards and receiving 70% of the platform fees in ETH (after deducting referral rewards and network costs). By providing liquidity for leveraged trading, LP holders make a profit when leveraged traders lose money and suffer losses when leveraged traders profit.

Minting and Redeeming

You can bridge any of the ZLP and degen pool pool tokens to zksync Era network. A list of available tokens can be found on the Dashboard.

The fees for purchasing ZLP or degenLP will differ depending on the current asset distribution within the index. The Buy ZLP/degenLP page will display the assets with the lowest fees. Once you have acquired the tokens, they will be automatically staked, and you will begin earning Escrowed ZKE and ETH rewards. You can monitor your rewards on the Earn page.

To redeem a specific amount of ZLP or degenLP, use Buy ZLP page.

In some cases, a spread may exist on certain tokens. Minting LP token will be based on the lower value of the token while redeeming LP will be based on the higher value of the token. For stablecoin tokens, the spread will range from the oracle price of the stablecoin to 1 USD. The price of LP will also be influenced by the spread of the tokens within the pool.

Rebalancing

Fees for minting LP tokens, burning LPs, or conducting swaps depend on whether the action enhances or diminishes the balance of assets in the index. For instance, if the index holds a significant portion of ETH and a smaller portion of USDC, actions that increase the index's ETH holdings will have higher fees, while actions that reduce ETH holdings will have lower fees. Token weights can be viewed on the Dashboard page after the launch.

Token weights are adjusted to manage risk for LP holders, taking into account the open positions of traders. For instance, if traders hold long positions in ETH, the ETH token weight will be higher, whereas stablecoins will have a higher token weight if many traders have short positions.

If token prices increase, the price of LP will also rise, regardless of whether the majority of traders hold long positions on the platform. The portion reserved for long positions is stable with respect to its USD value, as profits from that portion will be used to pay traders in case of a price increase. However, if prices decrease, traders' losses will maintain the USD value of the reserve portion.

In cases where stablecoins are assigned larger weights due to many traders holding short positions, LP holders will have synthetic exposure to the tokens being shorted. For example, if ETH is being shorted, the price of LP will decrease in case of a drop in ETH price. Conversely, if ETH price increases, the price of LP will rise due to the losses from the short positions.