It is with great excitement, joy and pride that we announce the release of Boosted Pools on Beethoven X. It is almost like our epic masterpieces in our first life where we kinda knew that it was amazing before the premiere, and then the epic joy when we saw the audience fall in love with the music and be carried away by the unfolding sounds.
Boosted Pools are similar. We know that this is pretty freaking awesome. Now, we unleash the music to you. We are confident that you will love it.
Boosted pools are a new innovative pool technology that looks to set the standard for capital efficiency when it comes to providing liquidity. It also sets the direction for the future of liquidity composition on Beethoven X.
In short, Boosted Pools allow for trades to be made between tokens while at the same time creating a pathway for the pool’s liquidity to be used elsewhere where it can be put to work to optimise its yield earning potential.
In most cases, less than 10% of the liquidity deposited into a liquidity pool is being used to facilitate trades at any given time. The reason for this is that in general the trade sizes being made in a liquidity pool are much smaller than the net sum of the pools available liquidity. However, deep liquidity is still necessary to facilitate large trades with low slippage.
Boosted pools make it possible for the idle liquidity to be deposited into another platform, for example a lending protocol (Aave) or yield aggregator (Yearn) where it can be put to work to generate additional yield.
This makes Boosted Pools a capital efficient option as they provide the opportunity for liquidity providers to receive additional yield by leveraging the “idle” liquidity in the pool.
How do they work?
In essence Boosted Pools function much like Stable Pools.
A Stable Pool is designed specifically for assets that are expected to trade at a similar price and are beneficial for traders/investors as they amplify the capital efficiency for like kind swaps.
- Traders receive the benefit of a tighter spread and lower slippage
- Investors can earn competitive yield with very low impermanent loss
Boosted pools are modelled upon a couple of innovations that allow them to create an alternative solution when it comes to facilitating efficient liquidity.
In this article we will take a look at:
- Linear pools
- Phantom BPTs
A linear pool is a new pool type designed to hold a main token (DAI) and ideally an interest bearing token (yvDAI).
Linear Pools can be nested together and form the basic structure of the Boosted Pool
To visualise this, imagine a Linear pool with two tokens inside: DAI and yvDAI:
Within this linear pool it is possible to make trades between the tokens DAI and yvDAI. Where DAI is a stable coin and yvDAI represents a token that is connected to a yearn Vault and is therefore generating a return in a variable percentage APR.
Unlike a standard 50/50 or weighted pool, the linear pool defines an upper and lower target which represents the optimal range for the balance of DAI in the pool. The configurable target range attempts to represent the minimum amount of liquidity needed to adequately support trading.
With the minimum liquidity requirements met, the remainder of the liquidity can then be wrapped in an interesting bearing asset, such as yvDAI, providing a “boosted” layer of yield to the liquidity providers.
In order to maintain the optimal range for DAI within the Linear Pool a reward mechanism is used to incentivise arbitrage trades.
Whenever the balance of DAI moves outside of the optimal range a linear fee begins to accumulate that rewards arbitrage trades made on the pool.
For example, in the DAI/yv DAI pool the optimal range for DAI sits between 900 000 and 1 000 000. Whenever this range is displaced a reward will be introduced to incentivise arbitrageurs to maintain the desired balance.
The reward for the arbitrage is defined by a swap fee percentage on the linear pool and increases in size LINEARLY the further the balance of DAI moves from its optimal range — hence the name Linear Pool. This occurs in both a positive/negative direction.
In other words the further away the balance of DAI is from its optimal range the higher the reward will be for an arbitrage trade.
By using arbitrage the linear pool creates a mechanism for the balance of DAI to be maintained within its optimal range and allows yvDAI to build up over time.
The ideal scenario for the linear pool is to have as much yvDAI as possible (yield bearing) with a balance of DAI in the optimal range for trading.
So how is this related to boosted pools?
Although the concept of a linear pool is super cool in theory it can’t provide much practical use in terms of liquidity when used alone. This is where the process of nesting comes in.
By nesting linear pools together a pathway is created to facilitate trades between a token pair in an efficient, fluid manner and at the same time provides the boosted yield for liquidity providers.
Let’s say we have 2 linear pools, one trading DAI and the other trading USDC.
For the sake of the example we will assume that in both of these pools the balance of DAI and USDC respectively is maintained within the optimal range and that the yield bearing token is actively generating income in a protocol.
Through the process of nesting, these 2 pools can be placed inside of another larger pool to create a composite pool that now has access to the net sum of all of the tokens in both of the linear pools.
This means that the new larger pool can now efficiently trade between all of the tokens contained within the nested linear pools much like a conventional stable pool. What makes this new pool different from a standard stable pool is that it has the added benefit of a significant portion of the liquidity earning yield in an interest bearing asset (ie yvDAI).
By drawing on the yield from these interest bearing tokens, the pool can now provide an extra layer of yield/ boost to liquidity providers on top of the swap fees and token incentives.
Normally when a Liquidity Provider joins/exits a pool, the pool mints/burns the BPT tokens as needed.
When considering nested pools however, this process would need to be repeated on each pool within the larger composite pool and as a result would add an unnecessary layer of complexity and cost through gas fees to the process.
To simplify this process Boosted Pools make use of Phantom BPTs.
As the name suggests, phantom BPTs are a representation of a pool’s BPT token.
In pools that use Phantom BPTs, all of the pool’s BPTs are minted at the time of pool creation and are held by the pool itself.
This allows the pool to utilise a swap rather than a mint/burn mechanism when issuing BPTs to liquidity providers.
This is a faster, more gas efficient process and significantly reduces the cost of issuing/reclaiming BPTs for liquidity providers. It also means that complex pool structures like that of a Boosted pool can now swap between tokens contained within the composite pool in a much more efficient manner.
By leveraging phantom BPTs consolidated, fluid liquidity becomes an efficient option and makes Boosted Pools a great example for how this technology is driving innovation.
Beyond Boosted Pools
The technology behind boosted pools is exciting and is by no means limited to just that of more efficient stable pools.
Nesting BPTs allow for the consolidation of disparate liquidity across the liquidity pool landscape. Rather than having disconnected hub tokens, where USDC and/or FTM appear in each pool, nesting by leveraging phantom BPTs allow for consolidation of core liquidity into fewer pools, enabling deeper more connected liquidity throughout all of BEETS liquidity.
The modular concept of a boosted pool can extend further and be integrated into a number possible pool configurations where the underlying concepts described above could be utilised to create new possibilities for yield efficiency and more sophisticated liquidity.
Boosted pools emerge as an exciting new option for yield generation within DeFi and are another great example of how the Balancer Labs technology is continually driving innovation in the Industry.
For more detailed information on the Balancer Labs technology check out their docs.
We have recently launched our first boosted pool on Beethoven X which you can interact with by following the link here.
Our friend Ceazor has released a short video covering boosted pools on Youtube which you can watch here for additional information.
We hope you found this article useful and gained some insight into the exciting new project launching on BEETS. We are constantly seeking to improve and innovate and it is an honour to be able to share our knowledge/products to the community.
Disclaimer:the information in this article is for educational purposes only and is NOT intended as financial advice. Beethoven X will not be liable for any Investment/trading activity of users.