Guide: Adding Liquidity (Updated)

Learn how to add liquidity in the updated version of Pods app

The update

The testing and demo phase helped us improve our app by making some flows simpler, such as the add liquidity functionality. And for this, we are grateful to our community for all the feedback given 🙌🏼

The main difference from this updated version to the previous one is the implementation of a zap, where, instead of inputting the number of options and/or stablecoins to add in the pools, the user simply has to input the total amount of stablecoins it wishes to provide as liquidity and our app will automatically:

• Mint options and add to the options side of the pool
• Add the equivalent value of stablecoins as liquidity to the other side

The main outcomes from this new implementation are:

• No need to mint the options before adding liquidity
• Easier overview on the initial exposure from the stablecoin perspective

Alongside these improvements, some functionalities are not available anymore in the app but are still possible to do directly through the contracts, and these are:

• Mint options
• Provide bought options as liquidity in the pools

A quick overview on Pods’ AMM

In order to facilitate bootstrapping an options market that is initially illiquid, Pods Protocol counts with an Automated Market Maker adapted for the case of options tokens.

The main reason for selecting the approach of creating a completely new AMM rather than using a general-purpose AMM is because the latest does not take important variables into consideration when pricing options according to the Black-Scholes pricing model we have chosen. This can result in a severe impermanent loss for liquidity providers.

You can read more and find further details about the use of General-Purpose AMMs and Options in the article we have published a couple of months ago:

General-purpose AMMs and Options

As a summary, Pods Protocol’s Options AMM implementation allows:

• pricing options algorithmically using Black-Scholes and account for changes in factors such as time to maturity and spot price.
• programmatically updating theImplied Volatility based on the pool's conditions.
• providing liquidity with options tokens and stablecoins and earn trading fees from the pools

One important concept in our AMM when providing liquidity is the difference between Exposition x Position — as it is an intensive topic, we will release an article digging more into it in the future.

Providing liquidity to the pool

In the Pool section, once selecting the series you’re interested in, you will be able to:

• Add Liquidity
• Remove Liquidity

For each series, the following information will be provided about each option pool:

• Option token.
• Stablecoin pair.
• Strike Price: the price will define whether the option is ITM or OTM.
• Expiration: the day that the pool expires.
• Wallet balance: how many options from that series you currently hold in your wallet.
• Your liquidity: how many options and/or stablecoins you’ve provided as liquidity to that specific pool.
• Pool liquidity: how many options and/or stablecoins the pool currently has — if you rover over the pool liquidity information, the total liquidity in USD will show up.

Add liquidity flow in the new app

Step 1

In this updated version of the protocol, when providing liquidity, all you have to do is to input the number of stablecoins you want to add to the pool:

Add liquidity zap

The app will automatically calculate, as a function of the current option price, the amounts of:

• Stablecoins that should be locked in as collateral
• Options to be minted to be added in the options side of the pool
• Stablecoins to be added to the stable side of the pool

Outcomes of the add liquidity zap

Step 2

Allow the transaction on MetaMask and click on Add Liquidity

Approve buttons

Step 3

Check your current position on the Dashboard page

Your positions summary on the dashboard

We did a demo of providing liquidity in the video below:

Tutorial on How to Add Liquidity at Pods

About Pods

Pods is a decentralized non-custodial options protocol. Users can create options and trade them through an Options AMM on the Ethereum Blockchain. Pods is the easiest way to hedge crypto in DeFi.

We invite you to take the first step in your new mission: start testing the app on app.pods.finance

Pods Finance | The easiest way to hedge crypto

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