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IDEX HL and LPs
Being a liquidity provider on IDEX HL is as simple as providing liquidity to any other AMM pool. Simply deposit equal amounts of each asset in the relevant pool, and the smart contract pricing function will handle the rest.
Like other AMMs, liquidity providers receive LP tokens representing their share of the pool. These tokens can be used throughout defi in liquidity mining programs or as collateral. IDEX will be providing its own liquidity mining program to bootstrap liquidity at launch.
LP profitability is a complex interaction between trading volume and price movement of the underlying assets. All else equal, higher trading volumes will lead to greater profitability.
Traditional AMM designs, with on-chain execution, are unable to capture all of the possible trading volume. In times of high volatility, on-chain execution acts as a circuit breaker. Quick price movements and wicks that revert back to the previous price cannot be acted upon in time, while high fixed execution costs can further limit the amount of trading.
The IDEX HL design is unique in that instant, off-chain execution ensures that all arbitrage opportunities, however brief, are able to be captured. The low settlement costs of Polygon reduce the fixed costs of arbitrage and further bolster the volumes, and therefore fees, captured by LPs.
Much has been made of the introduction of concentrated liquidity. These new AMM designs allow LPs to exert a finer level of control over their LP positions. These are exciting advancements of AMM design, and area of research for IDEX in the future, however, they fall short of delivering a real limit order experience with liquidity pools.
A few key differences:
- Using concentrated liquidity to simulate limit orders requires constant observation and monitoring, as orders must be removed after execution to ultimately settle the trade.
- Placing and cancelling of IDEX limit orders is free, while management of concentrated liquidity positions requires gas fees.
- Concentrated liquidity reveals your trading strategy publicly, and is subject to all of the mempool issues that affect platforms with on-chain execution (failed transactions, front-running, etc.)
Overall the IDEX HL design brings superior flexibility and functionality to both passive and active market makers.