Position-Based Liquidity Pools

Overview

In traditional DeFi systems, liquidity providers (LPs) are issued floating LP tokens that represent their proportional share of a pool's current value. These are known as value-weighted pools, where your position fluctuates with market volatility and total pool value.

However, our model uses a time-weighted, position-based pool — a fundamentally different approach that prioritizes fairness and long-term contribution over market speculation.

Key Principles

1. Position-Based Accounting

Every liquidity contribution is recorded as a fixed position:

• Token type (e.g., USDC, Peaq, TFT)
• Contribution amount (e.g., 1,000 USDC)
• Timestamp (e.g., January 1, 2025)

These positions are tracked permanently and do not change with price fluctuations.

2. No Floating LP Tokens

• Unlike standard DeFi protocols, we do not issue LP tokens that float with pool value
• Users do not gain or lose share based on volatility
• Instead, share is determined by:
  • How much you contributed
  • How early you contributed

Why This Matters

Feature	Value-Weighted Pools	Time-Weighted, Position-Based Pools
Contribution tracking	Dynamic	Fixed (amount + time)
Exposure to volatility	Yes	No
Fairness over time	No	Yes
Transferable LP tokens	Yes	No
Encourages long-term commitment	No	Yes
Impermanent loss	Yes	No

Implications

Pros

• Fair distribution based on participation, not market timing
• No front-running or last-minute pool stacking
• No impermanent loss (unlike traditional DeFi pools)
• Encourages early and stable contributions
• Aligns incentives with long-term growth, not speculation

Trade-Offs

• No instant liquidity switching between pools
• Internal migrations between pools require position translation, not token swaps
• Less suitable for active traders; optimized for committed supporters

Internal Switching Considerations

Because we track original token amounts and timestamps:

• Users cannot simply "convert" one pool share into another
• Any movement between pools requires:
  • Removing the original position from Pool A
  • Translating it into an equivalent position in Pool B, preserving contribution integrity

This model behaves more like vesting or NFT-based positions than traditional LP tokens.

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Value Calculation and Profit Distribution

How Value is Calculated

Value in this system is calculated using a fundamentally different approach:

• Each liquidity contribution maintains its original value rather than floating with market prices
• Your share of the pool is determined by contribution amount and contribution time

Profit Distribution When Someone Exits

When liquidity providers exit the pool through the Dutch auction mechanism:

Dutch Auction Process

1. LPs submit exit bids with an amount and minimum acceptable price
2. Bids are sorted from lowest price to highest
3. The system fills bids from the bottom up until reaching the maximum allowed exit amount
4. The last accepted bid sets the clearing price for all successful exits

Margin Collection

• A discount is defined per pair of tokens (e.g., USDC to TFT)
• When LPs exit, they receive the agreed amount minus this discount
• The collected margin (the discount amount) is pooled together

Profit Distribution

• Collected margins are redistributed to all remaining liquidity providers
• Distribution is proportional to each LP's share of the total liquidity
• The longer you hold, the more you benefit when others leave

Exit Protections

• Only up to 50% of total liquidity ever contributed (minus past exits) can leave through Dutch auctions
• This cap protects the pool from being drained

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Summary

Our system is built on time-weighted, position-based liquidity — not market-weighted value shares. This ensures that:

• All participants are rewarded based on what they contributed and when
• Not how the market fluctuates afterward

It's a principled approach for long-term alignment, fair participation, and stable tokenomics.

Virtuous Cycle

This creates a virtuous cycle where early and committed participants are rewarded, while the pool remains protected from being drained by opportunistic withdrawals.

Learn More

See how exits work in practice with the Dutch Auction Exit Mechanism.