Adding liquidity

When adding Loan Tokens, users must deposit at a tick higher than the highest tick with Fixed Rate Tokens (the pool's bid). Conversely, when adding Fixed Rate Tokens, users must deposit at a tick lower than the lowest tick with Loan Tokens (the pool's ask). This restriction prevents liquidity providers (LPs) from adding liquidity at sub-optimal market rates.

Consequently, only one tick 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, users must do so proportionally. As users borrow and lend within a given pool, liquidity providers' positions are effectively converted between Loan Tokens and Fixed Rate Tokens. Therefore, liquidity providers (LPs) accrue a combination of the money market rate and the fixed rate, in addition to collecting trading fees. These trading fees automatically compound in the pool.

For example, an LP could add liquidity across multiple ticks.

The following represents the impact of an LP adding Fixed Tokens and Loan Tokens across the 4% tick to the 7% tick in the order book.