Lending LP Positions

The Lending LP Position enables you to earn an interest-like return in exchange for providing capital to the Lending protocol. This position is seen as an Asset or Long position.

Trade Mechanics

The position works along a similar concept as Uniswap's concentrated liquidity. That is, you select a Principal or Trade Amount, and a desired lower + upper range (i.e. tick values) for which that Principal Amount will be switched into or out of Lending positions.

For example:

  • If the Spot or Reference Rate is 4%

  • LP may then provide a range of 4-8% (where the lower bound = the current Ref Rate)

If the Reference Rate moves within the range of 4-8%, then the Lend LP will receive a share of protocol fees in proportion to the total Lending LP positions within that range.

Unwinding Positions

At any time, the underlying position for the LP position (using the example above) is one of:

  • Ref Rate > 8%: 100% of Principal is Lent out (and earning interest)

  • Ref Rate < 4%: 0% of Principal is Lent out

  • 4% < Ref Rate < 8%: 0% to 100% of Principal is Lent Out

When you unwind your position, you will receive one of the above three depending on the underlying position. Your position will not 'reset' to the original $10mm cash position unless the Ref Rate is below your lower bound, or you have performed additional steps to unwind the underlying positions.

Be sure to read our primer on Lending LP Position Risk (coming soon)

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