AN IN DEPTH ANALYSIS OF YIELD BANK LP MODEL
PREAMBLE
In essence, liquidity pools are pools of tokens locked in a smart contract. They are used to promote trade by offering liquidity and are commonly used by a.k.a DEXes, some of the decentralized exchanges. The network of Yield Bank will have a broad range of highly liquid pools where our yCASH pools will complement the yB pools, thus sustaining the network ultimately with Yield Bank's liquidity pools efficiently looped through each other, offering users with stable yields for several years to come. When you invest your money into a pool of liquidity to become a provider of liquidity, you are given LP tokens in exchange. You can think of this LP token as a kind of IOU coupon that you can trade back every penny you put into the pool of liquidity at any period. The sum of LP tokens you have been given, in essence, reflects the value of the money you deposited into the pool.
YIELD BANK MODEL
The LP model of Yield Bank built on CORE's base functions makes sure that you can not remove your liquidity. If you plan to provide some of our pools with liquidity, the money will permanently be locked in there. In exchange for doing so, the LP token you are issued is then used to assess the profitability of the liquidity you generated, as well as the passive income factor that the LP token has. In principle, from that point forward, you use and exchange the LP token rather. The very first noticeable benefit that emerges from this model is that you now just have to move one rather than trying to move two separate assets through.
As the pool expands and new users join in, the incentives that you get overtime will reduce substantially. There are pros and cons of this. The benefit is that as a pool of liquidity expands, it will be much more sustainable and valued, thus minimizing risk. Simple game model postulates that pools with more money in them are better because the threat would have already occurred if it was possible to access them and remove or hold the funds, as long as the future benefit for the intruder exceeds the cost of conducting the threat. The further a protocol, a specific product or a particular pool runs without any problems, the less likely it is to fail or be hacked.
The negative is as game theory and fundamental economics would imply, that the incentives do so when the risk reduces, quite simply in this case. In other terms, when the pool expands and you still own the same amount of funds you put in not allowing for impermanent loss), but you are subject to less incentives for the same share (assuming that you did not put extra liquidity on top of the liquidity you were already supplying).
In the circumstance of the conventional LP token model of Uniswap, as these incentives decline, you can easily remove your money from the no-longer-profitable pool and transfer it into a new pool of liquidity. Eventually, in a readily available, liquid economy, there is a need to be able to exchange those tokens. The value of the LP token can change rapidly on the basis of several factors such as market dynamics, price fluctuations of the financial funds, incentives that increase or decrease with each period, and so on. This generates significant financial opportunities for all, from the most simple users of cryptocurrencies to experienced traders and (automated) arbitrators. In addition, LP tokens are passive income assets that if created from the led to substantial focused liquidity pool such as the liquidity pools of Yield Bank, would provide stable income for years ahead. Period of stable crypto revenue are equivalent to decades of appreciation of conventional finance index funds, considering how rapidly the crypto market moves and grows.
With the emergence of a new market, users would need to be able to monitor these new passive income assets while trading and exchanging these LP tokens for easy asset management and comfort. Yield bank have set out to optimize not only portfolio tracking but tracking of LP tokens in general with the ever-expanding range of liquidity pools provided by the existing DeFi domain. They will also mark LP tokens across their platform so that users will not have to use external portfolio trackers if they have multiple LP tokens from various pools to make sense of what LP token the liquidity pool refers to. Thanks to the database layer that have been developed on top of the Ethereum network, this will be done with the assistance of IAP (Individual Account Propriety) technology.
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