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SWINGBY DAO
Become a liquidity provider
Discover how to become a liquidity provider on Skybridge with Float Staking.
Liquidity providers are one of the main stakeholders of the Skybridge protocol and are rewarded to do so by receiving part of the transaction fees from users swapping BTC to WBTC (and vice versa).
In Swingby Skybridge, liquidity provision is also called 'Float Staking'.
The system is built around a LP token, issued as Swingby BTC ("sbBTC") that represents a stake in the total liquidity of the protocol. This token runs on Ethereum as an ERC20 compliant token that can be incorporated and traded in other DeFi protocols.
How to add liquidity?
Unlike many other DeFi protocols like Uniswap or Balancer, the liquidity provision is unilateral and one-sided. Participants wishing to lock their BTC/WBTC tokens need to deposit their tokens in a specific address by interacting with a contract that has been deployed on Ethereum.
When a liquidity provider deposits BTC or WBTC in the float pools, an sbBTC token is minted to their Ethereum wallet based on the price of the LP relative to BTC. It represents a stake of the total liquidity available in the pool.
For liquidity deposits, a fee can apply if there is an imbalance in the pool quantities, as defined by its ratio relative to the total quantities held in a two-asset pool.
The current ratios of a BTC/WBTC pool are defined for both assets, such as:
The associated fees are as follows:
ratio < 1/3
1/3 <= ratio <= 2/3
ratio > 2/3
0.20% for BTC deposit
0.00%
0.20% for WBTC deposit
We have set deposit fees to 0.00%~0.20% to keep the same ratio of balance of float pool.
How to remove liquidity?
When a liquidity provider withdraws BTC or WBTC from the float pools, the sbBTC token is burnt from their Ethereum wallet and the matching quantities are received based on the price of the LP relative to BTC.
We have set withdrawal fees to 0.50% to incentivize keep staking for remain LP for any withdrawal of sbBTC
How much of the total transaction fee do I receive?
Liquidity providers receive 34% of each swap fee (excluding network fees like gas). This percentage is shared proportionally based on the respective stakes for each liquidity provider.
The distribution of the transaction fee is done through the LP mechanism that is described in SWIP-020. The fee payment is implicit (i.e., no direct send transaction) and is compounded at each new swap.
Since we have set withdrawal fees for sbBTC, the sbBTC price will be increased permanently.
As a reference. we have 2 transactions to see how much increased.
What are the risks?
Since assets bridged are expected to be constant in value, some of the existing risks like the impermanent loss is nonexistent in Skybridge. However, the protocol itself may have some risks that all liquidity providers should understand before deciding to deposit liquidity onto Skybridge.
- Lack of liquidity to withdraw assets — since the ratio of the float pools is not expected to be equal to 50%, it is possible that the liquidity provider may not withdraw the preferred asset. For instance, if someone deposits 4 BTC and wants to redeem 4.25 BTC 3 months later while the float quantity on the Bitcoin network is less than 4.25BTC, the liquidity provider would only be able to withdraw to WBTC.
- Cost of opportunity relative to other lending platforms and other DeFi protocols — since liquidity providers collect fees from transactions, the revenue for liquidity providers fluctuates based on market demand for Skybridge. The total fees collected is positively linked to the activity of Skybridge. Thus, it is possible that the yield on their assets may not always be in line with user expectations. Conversely, the opposite situation can occur and the greater the market demand to swap assets is, the higher will be the return on their bitcoins.
Last modified 4mo ago