Liquidity

Contrary to limit orders, liquidity can be swapped against in both direction and is everlasting until the pool's maturity. Liquidity positions enable passive liquidity providers to collect swap fees from the swaps executed against their liquidity. Because a liquidity positions represent a claim on a combination of Loan Tokens and Fixed Tokens, the position is also yield bearing.

Adding Liquidity

Users can deposit a combination of Fixed Tokens or Loan Tokens at a specific tick. In return, they receive liquidity shares representing their pro-rata stake in the tick. If a liquidity provider wants to add liquidity across an interest rate range (accross multiple ticks) they can do so by bundling multiple add liquidity transactions.

Withdrawing Liquidity

Liquidity providers can redeem their liquidity position by burning their shares to withdraw a proportional amount of the tokens held in the tick. When withdrawing a liquidity position, users must redeem their entire position.

Impermanent Loss

Liquidity provisions in Tenor pools is subject to impermanent loss.

Exchange Rate IL

Because both assets LPed in the pair (Loan Tokens and Fixed Tokens) are denominated in the same currency the potential for exchange rate impermanent loss is null. This is a major difference to DEXs where the two tokens LPed are usually exposed to the risk of a rapid change in the exchange rate between the two tokens.

Interest Rate IL

Consider the following, an LP adds 1000 USDC in Loan Tokens at the 10% tick. He earns the money market's variable rate on his position (ex: 5%). If a borrower then borrows againt the LP position, the LP is now earning 10% fixed (plus received fees from the swap). If the money market's variable rate is now 20%, the user is at a loss compared to holding a position allocated fully to the money market.