$VLP
Last updated
Last updated
VLP is the liquidity provider token for VELA Exchange platform. It’s based on USDC staking, and can be redeemed for the underlying (deposited) asset at any time. Anybody can stake USDC (Arbitrum) or USDbC (BASE) to mint VLP and earn fees based on generated trading volume on the platform and chain minted.
$VLP Contract Address (Arbitrum): 0xC5b2D9FDa8A82E8DcECD5e9e6e99b78a9188eB05 (BASE): 0xEBf154Ee70de5237aB07Bd6428310CbC5e5c7C6E
In order to Mint VLP users need to use USDC/ USDbC directly from a Web3 wallet by entering the desired amount of VLP to mint.
Fee for minting/redeeming VLP is 0.05% and 0.5% respectively.
Redeeming VLP is just as simple by entering the amount of VLP and selecting a stablecoin to redeem for, however do keep in mind that there is a 2 day (48h) cooldown before minted VLP can be redeemed.
In addition to the staking function for minting VLP, users also have the ability to whitelist wallets or contracts that can stake on their behalf. In the future this will be used to allow cross-chain staking functionality utilizing platforms like Axelar.
VLP provides liquidity for traders, allowing them to take positions with leverage. If traders take a loss, then VLP holders will make a profit; if traders take a profit then VLP holders will make a loss. Rewards for providing liquidity and counterparty risk are based only on the chain which the VLP was minted. For example, providing liquidity with native USDC on Arbitrum will have the benefit of receiving a percentage of all fees derived from all trading and fee activity on Arbitrum. Although VLP value is market neutral and is not directly affected by the crypto market volatility, holding VLP still bears risks. For taking these risks, VLP stakers can earn up to 80% of the platform fees generated via trading activity per chain.
Smart Contract risk: Vela Exchange smart contracts are fully audited but nonetheless some inherent risks will always exist with any smart contracts.
Counterparty risk: If traders make profit, that profit is paid to the trader out of the VLP pool.
Depegging risk: In the unlikely scenario that USDC depegs, VLP is directly affected.
The open interest available for the perpetual platform is limited by the total USDC available in VLP per chain. Traders cannot open a new position if the total platform open interest meets or exceeds the total TVL in VLP.
A portion of all protocol generated [] fees including opening/closing positions, minting VLP, borrow fees, and excess funding fees as well as any losses [] from traders realized P&L and liquidations go towards the VLP vault (chain specific) causing it's price to go up over time. Any profits [] from traders realized P&L are paid out from the VLP vault causing its price to decrease. Overall, it is expected and highly probable that the price of VLP will gradually increase over time as net inflow exceeds net outflow.
The VLP price is based on the number of USD and VLP in the vault, at any time, where:
The amount of VLP minted [] or redeemed [] does not affect the price of VLP however it does affect the rate at which VLP price changes which can be expressed as follows:
For example let's say a user mints 1000 VLP at a price of $1.00 by depositing 1000 USDC into the VLP Liquidity Pool. Over time, due to the net flow of USDC into the pool, let's say the price of VLP has gone up to $1.50. If the user were to redeem 1000 VLP (now worth 1500 USDC), they would have made a 50% return.
We accomplish and sustain VLP rewards through a dynamic fee share model that further limits downside while also insulating the price of VLP in more predictable market conditions. To do so, the Vela Exchange treasury shares the exposure to counterparty activity (trader PnL) by offering a fee split range of 30-80% with VLP holders. By establishing an APR target, the vault and treasury each play a key role in balancing the risk and rewards of operating an exchange; When traders take more wins than losses, the Vela treasury makes up for potential capital losses by extending a portion of its allocated fee share to VLP, stabilizing its price and working to preserve the underlying capital. Similarly, when traders are accruing greater losses, VLP shares a portion of the fees to the treasury. This symbiotic relationship keeps both LPs and the exchange's interests in alignment for the betterment and profitability of each party.
