IDEX
  • Introduction to IDEX
  • What is IDEX
    • Components
      • High-performance Exchange
      • Hybrid Liquidity
        • HL Mechanics
        • IDEX HL and LPs
      • Smart Contracts
    • User Benefits
    • Liquidity Mining
    • Staking
    • Referral Program
    • Hummingbot
    • Markets
    • Fees
    • Live Help
  • Code
    • API
    • Smart Contracts
      • Custodian
      • Exchange
      • Governance
    • Resources
  • User Guides
    • Getting Started
      • Connect Your Ledger Hardware Wallet to IDEX
      • Connect Your Metamask Account to IDEX
      • Connect You Private Key/Keystore on IDEX
    • Trading
      • Deposit tokens
      • Withdraw tokens
      • Buy and sell
      • View and cancel open orders
      • View trade, deposit, and withdraw history
    • LP and Farms
      • Add liquidity (LP)
      • Remove liquidity (LP)
      • Add LP tokens to farms
      • Remove LP tokens from farms
    • Staking
      • Operate your own staking node
        • Host a public staking node
      • Delegate to an existing node
    • Polygon Confirmations
    • Hummingbot Setup
      • Pure Market Making
      • Arbitrage
    • AURA Swap Instructions
    • Withdraw Directly on Chain
      • Farm ID List
  • FAQ
    • Polygon Bridge
    • Escape Hatch
    • Adding Polygon To Metamask
    • Clock Sync
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  • LP Profitability
  • Concentrated Liquidity Comparison

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  1. What is IDEX
  2. Components
  3. Hybrid Liquidity

IDEX HL and LPs

Being a liquidity provider on IDEX HL is as simple as providing liquidity to any other AMM pool. Simply deposit equal amounts of each asset in the relevant pool, and the smart contract pricing function will handle the rest.

Like other AMMs, liquidity providers receive LP tokens representing their share of the pool. These tokens can be used throughout defi in liquidity mining programs or as collateral. IDEX will be providing its own liquidity mining program to bootstrap liquidity at launch.

LP Profitability

LP profitability is a complex interaction between trading volume and price movement of the underlying assets. All else equal, higher trading volumes will lead to greater profitability.

Traditional AMM designs, with on-chain execution, are unable to capture all of the possible trading volume. In times of high volatility, on-chain execution acts as a circuit breaker. Quick price movements and wicks that revert back to the previous price cannot be acted upon in time, while high fixed execution costs can further limit the amount of trading.

The IDEX HL design is unique in that instant, off-chain execution ensures that all arbitrage opportunities, however brief, are able to be captured. The low settlement costs of Polygon reduce the fixed costs of arbitrage and further bolster the volumes, and therefore fees, captured by LPs.

Concentrated Liquidity Comparison

Much has been made of the introduction of concentrated liquidity. These new AMM designs allow LPs to exert a finer level of control over their LP positions. These are exciting advancements of AMM design, and area of research for IDEX in the future, however, they fall short of delivering a real limit order experience with liquidity pools.

A few key differences:

  • Using concentrated liquidity to simulate limit orders requires constant observation and monitoring, as orders must be removed after execution to ultimately settle the trade.

  • Placing and cancelling of IDEX limit orders is free, while management of concentrated liquidity positions requires gas fees.

  • Concentrated liquidity reveals your trading strategy publicly, and is subject to all of the mempool issues that affect platforms with on-chain execution (failed transactions, front-running, etc.)

Overall the IDEX HL design brings superior flexibility and functionality to both passive and active market makers.

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Last updated 3 years ago

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