Skip to main content

Liquidity Provisioning

Providing liquidity in Tenor can be done by adding Loan Token and/or Fixed Token liquidity to one or multiple ticks in Tenor Pools. Liquidity providers (LPs) generate fees every time a user swaps to lend or borrow and they accrue the yield from the Loan Tokens and the Fixed Tokens they hold. Loan Tokens holders receive the yield of the underlying Morpho market, whereas Fixed Token holders receive the Tenor Pool's fixed interest rate.

When LPs add Loan Token liquidity, they must add the tokens at an interest rate tick that is higher than the pool's bid. When adding Fixed Tokens, LPs must deposit tokens at a an interest rate tick lower than the pool's ask. These conditions prevent LPs from adding liquidity at sub-optimal rates.

There is only one tick that can simultaneously hold both Fixed Rate Tokens and Loan Tokens. This tick is referred to as the "spot tick." When adding liquidity at the spot tick, LPs must do so proportionally.

Finally, when withdrawing liquidity from a tick, LPs must redeem their entire position at once.

Example​

Let's say an LP wants to add liquidity to a 1 year USDC Fixed Rate Pool with 1% ticks and the following outstanding liquidity distribution:

Tenor Liquidity

If they decide to add liquidity across the 7% to 10% tick range, the protocol will distribute the liquidity equally across the range. The dark rectangles in the illustration below represent the liquidity added by the LP in the pool.

Tenor Liquidity

If the Market Curator claims no fees for LPs, the LP will earn 1% in fees when a user swaps against their liquidity.

Rolling Forward​

When an LP's position in a pool matures, they must withdraw it, redeeming their LP tokens for the position's claims on Loan Tokens and Fixed Tokens. Next, the LP converts their Fixed Tokens into Loan Tokens at the settlement exchange rate. These Loan Tokens can then be used to establish a new LP position in a longer dated pool. Additionally, LPs will have access to tools—such as the Tenor explorer—allowing them to automatically roll forward their positions into longer-dated pools.