March 29, 2024

Introducing LP Vaults

dYdX
Introducing LP Vaults

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

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.

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.

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.

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.

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

Legitimacy and Disclaimer

Crypto-assets can be highly volatile and trading crypto-assets involves risk of loss, particularly when using leverage. Investment into crypto-assets may not be regulated and may not be adequate for retail investors. Do your own research and due diligence before engaging in any activity involving crypto-assets.

dYdX is a decentralised, disintermediated and permissionless protocol, and is not available in the U.S. or to U.S. persons as well as in other restricted jurisdictions. The dYdX Foundation does not operate or participate in the operation of any component of the dYdX Chain’s infrastructure.

The dYdX Foundation’s purpose is to support the current implementation and any future implementations of the dYdX protocol and to foster community-driven growth in the dYdX ecosystem.

The dYdX Chain software is open-source software to be used or implemented by any party in accordance with the applicable license. At no time should the dYdX Chain and/or its software or related components be deemed to be a product or service provided or made available in any way by the dYdX Foundation. Interactions with the dYdX Chain software or any implementation thereof are permissionless and disintermediated, subject to the terms of the applicable licenses and code. Users who interact with the dYdX Chain software (or any implementations thereof) will not be interacting with the dYdX Foundation in any way whatsoever. The dYdX Foundation does not make any representations, warranties or covenants in connection with the dYdX Chain software (or any implementations and/or components thereof), including (without limitation) with regard to their technical properties or performance, as well as their actual or potential usefulness or suitability for any particular purpose, and users agree to rely on the dYdX Chain software (or any implementations and/or components thereof) “AS IS, WHERE IS”.

Nothing in this post should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act by anyone.  Users should conduct their own research and due diligence before making any decisions. The dYdX Foundation may alter or update any information in this post in the future at its sole discretion and assumes no obligation to publicly disclose any such change. This post is solely based on the information available to the dYdX Foundation at the time it was published and should only be read and taken into consideration at the time it was published and on the basis of the circumstances that surrounded it. The dYdX Foundation makes no guarantees of future performance and is under no obligation to undertake any of the activities contemplated herein.

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dYdX is a decentralised, disintermediated and permissionless protocol, and is not available in the U.S. or to U.S. persons as well as in other restricted jurisdictions. The dYdX Foundation does not operate or participate in the operation of any component of the dYdX Chain's infrastructure.

Nothing in this website should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act in any way by anyone. You should perform your own research and due diligence before engaging in any activity involving crypto-assets due to high volatility and risks of loss.

Depositing into the MegaVault carries risks. Do your own research and make sure to understand the risks before depositing funds. MegaVault returns are not guaranteed and may fluctuate over time depending on multiple factors. MegaVault returns may be negative and you may lose your entire investment.

The dYdX Foundation does not operate or has control over the MegaVault and has not been involved in the development, deployment and operation of  any component of the dYdX Unlimited software (including the MegaVault).

Crypto-assets can be highly volatile and trading crypto-assets involves risk of loss, particularly when using leverage. Investment into crypto-assets may not be regulated and may not be adequate for retail investors. Do your own research and due diligence before engaging in any activity involving crypto-assets.

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