GammaSwap Docs
Search
K

Why LP in GammaSwap?

Benefits of LPing in the GammaSwap Protocol

DeltaSwap Pools

DeltaSwap is a CFMM created by the GammaSwap labs team. It used the canonical x * y = k formula similar to Uniswap V2.
DeltaSwap operates like a normal Uniswap V2 AMM except that it charges no swap fees. The yield will be different than UniV2 as the LP only earn fees from borrowers not spot traders, however, the IL risk is the same and is easy to calculate. DeltaSwap should facilitate more DEX volume as it lower the spread charged to spot traders.

GammaSwap Wrapped Pools

GammaSwap is a liquidity middle layer for various AMMs. We have integrations with Uniswap, SushiSwap and more planned in the future.
Liquidity Providers must provide liquidity through the GammaSwap platform to earn additional borrow fees. In the case of a Uniswap V2 WETH/USDC pool, they will need to deposit either of the underlying tokenss, WETH or USDC in this case.
In return, the LP will receive a GammaSwap ERC-20 token that collects all of the swap fees from the underlying AMM plus additional borrow fees from traders in GammaSwap.
GammaSwap Wrapped Pool Diagram

Why Provide Liquidity in GammaSwap?

DeltaSwap

DeltaSwap operates like a normal Uniswap V2 AMM except that it charges no swap fees. Therefore, all of the yield Liquidity Providers earn is from borrowers. The benefits over wrapped pools is that DeltaSwap is more efficient to borrow from as the total cost to trade is lower. In wrapped pools, borrowers have to pay swap fees to the underlying AMM. In DeltaSwap, this is not the case which means a higher utilization and more yield for LPs particularly when volatility is high.

Wrapped Pools

A rational LP will always look to provide liquidity in GammaSwap as opposed to the underlying AMM. This is because LPs in GammaSwap earn additional yield from those borrowing liquidity while earning more fees. The only additional risk is the smart contract risk which GammaSwap has been audited for.
uniswap lp pnl = swap fees - impermanent loss
gammaswap lp pnl = swap fees - impermanent loss + borrow fees As shown above, the yield in GammaSwap should always be greater than or equal to the underlying AMM. The only exception might be liquidity mining incentives but those can be applied to GammaSwap liquidity pools as well. This is because the LP's liquidity is either in the underlying AMM or the borrower is paying those swap fees plus additional borrow fees as part of the interest rate when the LP tokens are burned. Liquidity mining incentives do not factor into the borrowers PnL.

Yield that scales with Impermanent Loss risk

The APY for liquidity provides scales with Impermanent Loss risk which means Liquidity Providers 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, borrow utilization should increase and LPs will earn a higher APY commensurate for their risk. This method will self adjust LP fee revenue in various market conditions for any asset.