Liquidity Maintenance

Concept

Typically, teams struggle to compete with incentives in order to ensure a tokenized yield product remains sufficiently liquid. Rather than fight this battle, bbHLP opts to use its USDC deposits to partially fund its own liquidity.

The protocol automatically allocates 10% of USDC deposits to approved LP tokens on supported chains.

Composition

This means that the bbHLP is comprised of 90% HLP deposits, and 10% bbHLP-USDC LP tokens. This may vary slightly in practice, but the result is effectively 94.5% HLP exposure, and 5.5% USDC exposure, with the addition of trading fee and incentive income from the LP.

Resulting Yield

When the yield from trading fees and incentives earned exceeds the HLP opportunity cost, this strategy will actually be more profitable than independently depositing USDC into 100% HLP. When the HLP yield is higher, the opposite will be true. It is impossible to predict the future, but it is likely that the end result will be a slightly higher net yield for bbHLP than raw HLP, with a slight smoothing effect to the overall PnL.

Long Term Benefits

One way or another, someone has to pay liquidity providers to make a token liquid. Utilizing this design, fees can lower over time, while maintaining liquidity, and without the need to charge increasing fees to sustain incentives to liquidity providers. The mechanism is self-sustaining and likely profitable, especially considering the incentives that will be distributed near launch.