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Tethys in a liquidity pool
TLP consists of an index of assets used for swaps and leverage trading. It can be minted using any index asset and burnt to redeem any index asset. The price for minting and redemption is calculated based on (total worth of assets in index including profits and losses of open positions) / (TLP supply).
Holders of the TLP token earn 70% of platform fees distributed in METIS (starting after liquidity bootstrap period). Note that the fees distributed are based on the number after deducting referral rewards and the network costs of keepers, keeper costs are usually around 1% of the total fees.
Current breakdown for underlying token basket is:
- 15% METIS
- 20% ETH
- 10% BTC
- 5% AAVE
- 50% USDC
Fees for buying TLP will vary based on which assets the index has less or more of, the Buy TLP page will show which assets have the lowest fee.
To avoid potential manipulations there is a 24 hour window for redeeming TLP. The timer resets after every TLP purchase.
The fees to mint TLP, burn TLP or to perform swaps will vary based on whether the action improves the balance of assets or reduces it. For example, if the index has a large percentage of METIS and a small percentage of USDC, actions which further increase the amount of METIS the index has will have a high fee while actions which reduces the amount of METIS the index has will have a low fee.
Token weights are adjusted to help hedge TLP holders based on the open positions of traders. For example, if a lot of traders are long METIS, then METIS would have a higher token weight, if a lot of traders are short, then a higher token weight will be given to stablecoins (USDC).
If token prices are increasing, then the price of TLP will increase as well, even if a lot of traders have a long position on the platform. The portion reserved for long positions can be treated as stable in terms of its USD value since if prices increase the profits from that portion will be used to pay traders, and if prices decrease, the losses of traders will keep the USD value of the reserve portion the same.
If a lot of traders are short and larger weights are given to stablecoins, then TLP holders would have a synthetic exposure to the tokens being shorted, e.g. if METIS is being shorted then the price of TLP will decrease if the price of METIS decreases, if the price of METIS increases then the price of TLP will increase from the losses of the short positions.
Caution should be exercised when interacting with any smart contract or blockchain application. While risks are attempted to be mitigated through testing, audits and bug bounties, there is always a risk of vulnerabilities in smart contract code.
A non-exhaustive list of some risks:
- Smart contract risks
- Counterparty risks: The TLP pool is the counterparty to traders, if traders make a profit that comes from the value of the TLP pool
- Token risks: Bridged tokens may depend on the security of the bridge, pegged tokens have risks of depegging