Timeswap Supernova: Permissionless liquidity
Launching permissionless liquidity for community starting today
GM Time Travelers
Today is one small step for Timeswap but a giant leap for DeFi. Permissionless liquidity addition is finally here! From the start we promised that Timeswap will be the first fully decentralized lending and borrowing protocol. With the launch of the liquidity addition mechanism, we are one step closer to delivering on our promise.
This article lays out how liquidity addition works and what are some of the risks you may be exposed to when you become a liquidity provider on Timeswap. Let’s jump right in!
How to get started
So, you have a fresh wallet loaded with crypto and you want to put it to work in Timeswap? Here’s how you can become a liquidity provider on Timeswap and earn yourself some yield.
Step 1: Navigate to the Liquidity tab
When you first land on the dApp, you will be greeted with four choices on the navigation bar: Markets, Lend, Borrow and Liquidity. Choose Liquidity and you will end up at the page pictured above. From here you can select the relevant pool and proceed to adding liquidity
Step 2: Add liquidity to an existing pool
To add liquidity to an existing pool, follow below steps.
Select the asset and collateral (USDC and MATIC as an example), then pick the maturity of the pool you want to add assets to. Once this is done, you can input how much USDC you want to add to the pool and the amount of collateral to be added will be automatically calculated and displayed. You can enter either of the above and the corresponding amount will be shown. If you have enough collateral and asset in your wallet, you can click confirm and voila! That’s it, you are now a liquidity provider on Timeswap! You can view your share of the pool liquidity on right side and the current APR and CDP values of the pool at the time of initiating transaction.
We will be opening up pool creation to the public eventually. In the meantime, if you are a protocol or team that wants to create your own pool please contact us. We will be happy to assist you in creating your pool via a custom UI.
Why become a Liquidity Provider?
As a liquidity provider, you are eligible to earn transaction fees that are paid by the lender and borrower for each transaction. Today the transaction fee is 1.5% of transaction value annualized, i.e., if you borrow $1000 for 1-week duration, the transaction fee will be ((1000*1.5/100)/52). The LP will be earning 5/6th of this transaction fee while the remaining 1/6th is protocol fees.
Risks as a Liquidity Provider
As always, we want Time Travelers to have the best experience possible when interacting with Timeswap. Part of that is assessing and disclosing the risks associated with providing liquidity on Timeswap. This risk comes in two parts: default risk and divergence loss.
Timeswap operates on a no-liquidation basis. This is what allows us to offer a permissionless and decentralized experience to users. But, this also means that borrowers may default on their debt if the value of their collateral is lower than debt closer to maturity.
However, to guard against this unlikely outcome, Timeswap uses over collateralized lending to secure LPs against this eventuality. Because you can choose your own risk profile, you are never locked into providing liquidity under one overarching assumption like other protocols utilise. This means that there may be multiple pools where USDC can be borrowed against MATIC and you can choose whether to provide liquidity for a particular pool. The game theoretically optimal choice here would be for a liquidity provider to choose the pool with the best parameters that is least likely to default. In this way, Timeswap achieves both permissionless lending while incentivising the best pools to attract the most liquidity, making the base protocol itself decentralised.
Impermanent or Divergence Loss
As Timeswap works on a 3 variable AMM, as the prices fluctuates the pool balances alter leading to what we commonly refer to as impermenant or divergence loss which we are familiar with other AMM based protocols such as Uniswap. All AMM based protocols have the similar property where the features of always available liquidity leads to divergence loss for liquidity providers as the pool balances of the assets vary with change in interest rates & CDP of each pool. Timeswap LPs are also exposed to this risk and LPs need to be cognizant of this while adding liquidity into any pool.
Flash Repay — a nifty feature
Flash Repay is a new feature to make the user experience smooth for liquidity providers. As a liquidity provider on Timeswap, you are both a lender and borrower at all times, this results in LPs also having a borrowing position which you will see when you navigate to the Borrow tab. This borrow position has to be repaid before the pool maturity, provided the value of collateral locked is higher than the value of debt.
With the Flash Repay feature you don’t need to bring in more assets to repay your debt. Simply use the Flash Repay functionality to repay your debt by utilizing the flashswap function available with DEXs such as Quickswap and Uniswap. When you click Flash Repay, the dApp will use flashswap functionality to repay your debt and the remaining collateral left after repaying your debt will be transferred to your wallet.
We have many exciting rewards lined up for Liquidity providers who are participating in the Supernova launch event. Head over to our discord to learn more about the qualifying criteria and the rewards which includes NFTs and other future rewards! You don’t want miss this!
We are extremely excited to launch permissionless liquidity and enable truly permissionless & decentralized money market in DeFi. The era of CeFi and CeDeFi based opaque lending is over in Crypto after the recent blow ups of many lenders, the open and transparent ledger of DeFi applications continue to perform as usual under all market conditions and we are excited to be part of this movement of bringing DeFi to the wider world. With permissionless pool creation to be launched in the next few weeks we will become the first fully decentralized and self-sufficient money market protocol in DeFi. We are ready, are you anon?