AMM Liquidity Provision

Providing liquidity on Tribe3 is similar to being a maker using limit orders, except you are providing the liquidity as a passive maker. When your liquidity is matched with a taker order, you will act as the counterparty and take up the opposite side of the taker order. You will receive a fee of 0.2% whenever your liquidity is utilized to fill a trade. Leveraging the design of our AMM, you will be able to optimize the capital efficiency of your liquidity by applying leverage and setting price range.

Applying Leverage

Similar to opening long or short leveraged positions, you can increase the amount of liquidity provided with less capital by applying leverage of up to 5x. For instance, you can supply 10 WETH worth of liquidity with just 2 WETH. A larger position size enables users to capture a larger portion of the pool's trading fees. However, with higher leverage, your impermanent loss can also be amplified.

Selecting Price Range

The ability to determine the price ranges to provide liquidity gives you the power to increase capital efficiency. Specifically, the tighter the price range, the higher the amount of fees you are going to earn, as a higher percentage of your deposited liquidity is utilized. Your liquidity position remains active as long as the price remains in your specified price range. However, similar to a liquidity position with higher leverage, a tighter price range means you will face a larger impermanent loss and if the price goes out of range, then your liquidity position becomes inactive and will no longer earn fees.

Managing Risk of Your Liquidity Position

As the price deviates from the entry price of your liquidity position, you will start supplying liquidity to other traders and earning fees. At the same time, you will also start incurring impermanent loss from your impermanent position and will potentially have to pay funding payment. It is important to then keep an eye on the risk metrics, specifically the leverage level, to make sure you are safe from liquidation. Similar to other positions, your liquidity position is subject to partial liquidation when leverage hits 8x while it is subject to full liquidation when leverage hits ~10x.