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Becoming a Liquidity Provider

High level description of how lending works and implications of being a liquidity provider.​

Liquidity is the key to any financial instrument, and xycLoans manages its own liquidity with safety as the first and most important principle. The protocol itself doesn't manage the liquidity, but every pool has its own liquidity management which only comes from and goes to the lenders.

When you become a liquidity provider, you will be minted liquidity provider shares, which will allow you to:

  • withdraw your liquidity at any time without any restrictions.
  • collect and withdraw the accrued yield.

What is means to be a liquidity provider​

As a liquidity provider, your role is to provide liquidity to the protocol's pools in exchange for yield generated by the borrower's fee.

As we have hinted, pools on xycLoans are meant to be a closed circuit. This means that when liquidity enters and exits a xycLoans pool it is because a lender has deposited or withdrawn directly from that pool, so each pool's liquidity is independent from the protocol. As a result, in xycLoans there is no such thing as "depositing liquidity into the protocol", rather you will be choosing the pools to deposit into.

The dispersion of liquidity between the various token pools will be regulated by the market itself, where pools with high demand and low liquidity will make for good opportunities, and vice versa.