English
中文
日本語
한국어
русский
Türkçe
Français
Português
Español

Introducing LP Vaults

dYdX
dYdX
Liquidity vaults
dYdX
dYdX

Overview 

As noted in the dYdX 2024 Product Roadmap, one of the key pillars of launching permissionless markets is LP Vaults.

LP Vaults enable anyone to provide automated liquidity strategies on protocols using dYdX software by simply depositing USDC into a LP Vault. That USDC is then pooled with all other USDC that was deposited into that market’s vault and subsequently used to automatically provision liquidity on both sides of the book in a decentralized and non-custodial manner. 

LP Vaults will be available for any cross or isolated market available on protocols using dYdX software, but is especially useful for newer markets that likely have limited liquidity. The launch of LP Vaults will enable the addition of standing liquidity on any market. 

LP Vault Strategy and Functionality

The general goal of each LP Vault is to provide liquidity at all times while being economically viable over long periods of time. LP Vaults aim to have zero net exposure on each market, and deterministically adjust their quoting strategies to attempt to get back to neutral positioning (zero open interest). Vault strategies are fully defined on-chain, and have governance-controllable parameters, which can be used to adjust certain variables of the strategy. 

Vaults pass on any profits (and losses) to depositors, along with any maker fee rebates or trading rewards generated by the vault’s trades.

For vaults to be sustainable, then, they must offer market-competitive yields to depositors.   

Phased Rollout 

LP Vaults will likely be deployed to the dYdX Chain open source software in phases.  

Phase 1:

  • An experimental version of LP Vaults that is deployed at a protocol level (via a new module,“x/vault”) with no accompanying front-end

  • Will support deposits only. Withdrawals will not be enabled until Phase 2

  • One vault available per market. Each vault is activated (starts quoting) once its first deposit is sent

  • Governance controllable parameters that apply to all vaults across the protocol

  • Timing: to be included in dYdX Chain Release 5.0.0

Phase 2 adds:

  • Ability for depositors to withdraw from each LP Vault

  • Front-end functionality

  • Updated quoting strategies

  • Unique trading privileges given to LP Vaults

  • Timing: to be included in dYdX Chain Release 6.0.0

*Given LP Vaults are in active development, all of the above is subject to change 

FAQs

Who should deposit into LP Vaults during Phase 1? 

Given LP Vaults, especially in Phase 1, are highly experimental, dYdX Trading advises that any deposits into them be limited in volume and limited to protocol community funds. Phase 1 will give protocols using the software a chance to evaluate the vaults’ strategy and make updates as needed in preparation for Phase 2. 

It is not recommended that any other users deposit into LP Vaults during Phase 1. 

How do traders deposit into a LP Vault?

During Phase 1, traders manually deposit USDC to a module account (unique to each market). That USDC is then accounted for via shares. During Phase 1, shares can be tracked by querying the vault’s state on-chain. 

What are the risks involved with LP Vaults? 

LP Vaults actively trade and take positions, and their value will fluctuate based on market conditions. Therefore, they have the risk of losing some or all of the USDC deposited. Phase 1 does not support withdrawals from LP Vaults, so depositors must be aware that their assets may not be withdrawn until Phase 2. LP Vaults will be treated the same as all other traders during Phase 1, including being exposed to potential liquidation. 

Depositors should carefully understand the risks involved before depositing. 

Are LP Vaults an experiment? 

Yes, LP Vaults are highly experimental, especially in Phase 1. It is highly likely that various optimizations need to be built in Phase 2 and beyond.

Where can I find more technical information on vaults? 

Stay tuned for more technical information on LP Vaults to be published at docs.dydx.exchange

Terms and Conditions: Nothing in this document is intended to or should be construed by anyone including dYdX ecosystem participants as a representation, promise, commitment or undertaking by dYdX Trading Inc. (“dYdX”) to perform any action or provide any services, and no person should derive any actual or potential expectations whatsoever or be entitled to any type of legal action or claim of any type against dYdX as a result of this document. This document provides information with respect to the default settings of dYdX open source v4 software (”dYdX Chain”). dYdX does not deploy or run v4 software for public use, or operate or control any dYdX Chain infrastructure. dYdX is not responsible for any actions taken by other third parties who use or deploy v4 software, including dYdX Chain. dYdX services and products are not available to persons or entities who reside in, are located in, are incorporated in, or have registered offices in the United States or Canada, or Restricted Persons (as defined in the dYdX Terms of Use). The content provided herein does not constitute, and should not be considered, or relied upon as, investment, legal, or any other form of advice. The information contained herein, and any use of v4 software, are subject to the v4 Terms of Use.