Liquidity Provision
xTokens are traded primarily on Uniswap, the most popular decentralized exchange. Their pricing is dependent on supply, demand, and liquidity provisions.
An LP (liquidity provider) will deposit a pair of assets to a liquidity pool in order to earn trading fees on that pair.
For example, an LP can provide xSOY and USDC to the xSOY/USDC market on Uniswap. A trader can then come along and purchase the xSOY token with USDC (or another token that would be routed USDT > USDC > xSOY).
This increases the balance of USDC in the xSOY/USDC pool and decreases the amount of available xSOY. This imbalance in the pool creates a shift in the price using the constant product formula:
x × y = k
x and y represent the pool balance of each token, and k is the total constant price of the pool creating the following price curve.
Liquidity providers earn trading fees for providing this service at a rate of 0.3% per trade on standard pools.
Current commodity prices per KG as of July 2022 for price calculations.
Wheat- $0.35/kg
Soy - $0.57/kg
Corn - $0.31/kg
Rice-$0.42/kg
xBasket - $0.41/kg (average)
Initial prices can be calculated to target a 7% annual yield.
xTokenPrice = CommodityPrice ÷ 0. 07
The LandX team will create the following pools initially and supply seed liquidity as described below.
xBASKET/USDC
$5.86
153,658
900,000
xWHEAT/USDC
$5.00
200,000
1,000,000
xSOY/USDC
$8.14
122,807
1,000,000
xCORN/USDC
$4.43
158,064
700,000
xRICE/USDC
$6.00
83,333
500,000
Exact amounts are subject to change based on commodity prices at time of deployment.
Seed liquidity will be divided into two positions for each pool. 68% will put in a concentrated range to create a stable price. 32% will be put in a broad range to create wide liquidity in case of sudden spikes in demand².
Liquidity provisions will be managed on an ongoing basis with the aim of creating stable pricing relative to the underlying agricultural asset prices.
² - Based on work by Guillaume Lambert https://lambert-guillaume.medium.com
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