Liquidity Vault
Last updated
Last updated
The Liquidity Earn Vault is the core liquidity pool that acts as the counterparty to every trade on the Drake protocol. Liquidity providers in this pool are rewarded with a share of the trading fees, as well as any negative PnL from traders.
The pool is composed of USDC, which serves as the collateral for traders and is the denominated asset for each trading pair on the platform. When USDC is deposited in the vault, the user will receive a proportional amount of dUSDC tokens in return. The dUSDC tokens represent the user’s share of the liquidity in the vault and are required to make a withdrawal to receive the initial USDC plus any profit earned.
The dUSDC vault adheres to the ERC-4626 standard, designed for tokenized yield-bearing vaults that represent shares of a single underlying ERC-20 asset.
The vaults play a crucial role as the counterparty to all trades on the platform:
When traders win (positive PnL), their profits are paid out from the vault.
When traders lose (negative PnL), their losses are deposited into the vault.
In return, the vaults earn a share of the trading fees. These fees are proportionally distributed among dUSDC shareholders, providing an incentive for stakers to keep their assets in the vault and continue earning rewards.
When users provide liquidity to the platform, they receive dUSDC tokens as proof of their share in the liquidity vault. These tokens are minted when liquidity providers deposit their assets into the vault and are burned when they withdraw their funds. The value of dUSDC tokens can fluctuate based on the trading outcomes on the platform, reflecting the overall profits or losses of traders. The value is determined by the following formula:
Users can receive a discount on their deposit by locking their liquidity for a period ranging from 7 to 365 days. A 7-day lock earns a discount of 1.15%, while a 365-day lock offers a discount of 10%.
For example, if you deposit $10,000 with a 365-day lock, you will be credited with $10,000 worth of liquidity, while only $9,000 in USDC is withdrawn from your wallet.
