Why LP in GammaSwap?

Benefits of LPing in the GammaSwap Protocol

1. Earn a higher yield

In GammaSwap, you can deposit into various AMMs through GammaSwap: Uniswap V2, SushiSwap V2, etc. When you deposit liquidity into the AMM, the liquidity is usable by spot traders to facilitate swaps unless the liquidity is borrowed. Borrowers (perp option traders) pay the swap fees the LP position would have earned plus additional funding fees. If you are an LP in Uniswap V2, you have the following return profile.

uniswap lp pnl = swap fees - impermanent loss

If you are an LP into a Uniswap V2 pool through GammaSwap, you have the same return profile (swap fees - IL) except you also earn additional borrow fees.

gammaswap lp pnl = swap fees - impermanent loss + borrow fees

There is no additional Impermanent Loss risk by providing liquidity through GammaSwap. The only extra risk is liquidity risk: if utilization is high you may not be able to remove your whole LP position immediately. This is the same risk as lending markets like Aave. The solution is to remove your liquidity in pieces if utilization is high.

In DeltaSwap, you don't earn swap fees but there is an arbitrage opportunity between other AMMs if the yield is lower. The arbitrage can be closed by borrowing in the pool with a lower yield and providing liquidity in the higher yielding pool. This is a delta neutral, low risk strategy since borrowing in a straddle is the exact opposite return of an LP.

2. Earn fees in line with your risk

The APY for liquidity provides scales with Impermanent Loss risk which means LPs should earn better risk adjusted returns than the underlying AMM. For example, if an LP is providing liquidity into an ETH/USDC pool, and the price of ETH skyrockets from 2,000 USD to 2,500 USDC the LP would experience a 0.62% loss in his portfolio. The volume may increase in this period but historically it does not increase proportionally with the change in price. It is a well known phenomenon that many Liquidity Providers are not profitable due to Impermanent Loss risk. In GammaSwap when the market estimates that volatility will be higher, utilization should increase and LPs will earn a higher APY commensurate for their risk. This method will self adjust LP fee revenue for volatility in various market conditions for any asset.

This does not mean you will always be profitable as an LP in GammaSwap, rather that your risk adjusted yield should be higher since you are paid by traders willing to take the opposite risk.