🟢Voltage v3: Concentrated Liquidity
Welcome to Voltage v3, a pivotal advancement in decentralized finance liquidity management. This document provides a comprehensive guide to the functionalities and innovations of Voltage v3, with a focus on our cutting-edge feature: concentrated liquidity. As we progressively roll out updates, further documentation will be shared to keep our community informed and engaged.
After the initial release of the beta version of concentrated liquidity across two pools in early January, Voltage introduced the full-scale launch of Voltage v3 which features:
A more intuitive and navigable interface
The ability to create new pools directly on the DEX.
New pools and farms with enhanced rewards, including VOLT-FUSE, WFUSE-WETH, fUSDV3-VOLT, and more.
As we shift our focus to v3, rewards for v2 farms will be reduced to reallocate benefits to the new platform.
1) Overview of Voltage v3
Introduction to Concentrated Liquidity
Voltage v3 introduces concentrated liquidity, a significant evolution from the uniform liquidity distribution of earlier versions. This feature allows liquidity providers to allocate their capital within specific price ranges, enhancing capital efficiency, particularly in stablecoin pairs where prices remain relatively constant.
Active Liquidity and Price Ranges
In Voltage v3, liquidity becomes 'active' when the asset's price is within the LP's set price range, enabling fee earning. If the price moves outside this range, the position becomes inactive, ceasing to earn fees. LPs can create multiple positions with distinct price intervals, optimizing their capital based on market movements.
Non-fungible Liquidity Positions
Voltage v3 treats liquidity positions as non-fungible tokens (NFTs), each with unique settings. These NFTs represent ownership of the underlying assets and the trading fees earned. They are transferable and provide the flexibility to redeem funds by removing liquidity.
Earning Trading Fees
Liquidity providers in Voltage v3 earn trading fees from pool swaps. These fees vary depending on the liquidity pool's fee tier, incentivizing providers to strategically allocate their liquidity.
Capital Efficiency with the new Concentrated Liquidity Pools in Voltage v3
Concentrated Liquidity (CL) pools offer enhanced ROI opportunities by allowing LPs to concentrate their position around a predefined price range. This approach is more capital-efficient than traditional liquidity pools but requires more active management.
LPs in Voltage v3 can actively manage their liquidity positions. This involves adding liquidity to pools, adjusting positions in response to market changes, and strategically removing liquidity when needed.
2) Technical Insights into Voltage v2 vs v3
V3 offers capital-efficient trading and lower trading slippage by “concentrating” the capital on the most actively traded price range. This ensures more liquidity, less slippage, and greater capital preservation for traders, regardless of the fee tier.
More Flexibility, More Choice, and More Earnings: V3’s capital efficiency allows LPs to focus their assets on specific price ranges, resulting in a more rewarding and flexible liquidity provisioning experience. Key features include:
Customizable Price Range: LPs can select narrow price ranges, which generally result in higher earnings. LPs can expect to earn many times more on the same amount of deposits.
Flexibility of Fee Tiers for the Same Token Pair: LPs can choose from multiple trading fees tiers (0.01%, 0.05%, 0.3%, and 1%) when providing liquidity for the same token pair. For instance, LPs can provide liquidity for a trading pair with either a 0.3% or 0.05% trading fee rate, depending on which fee tier offers a better deal and attracts more trading volume.
Non-Fungible Liquidity Positions: Each liquidity position has a unique ID based on its configurations, such as price range. Therefore, LPs can create and maintain multiple positions for the same trading pair but with different configurations and liquidity amounts.
Fee mechanism
When users perform a swap, fees are accurred in the particular pool the swap was performed in. LP providers can then claim the fees they have earned from the pool.
💡 Example: Consider a stablecoin pair like USDT/USDC in V2, where liquidity is distributed across a wide price range. In V3, the same pair can have liquidity concentrated around the 1:1 price ratio, resulting in more efficient capital usage and potentially higher returns for the same amount of investment.
With Voltage v3, the $VOLT token adopts a deflationary model with the introduction of a burning mechanism. This ensures that with every transaction within the ecosystem, $VOLT tokens are permanently removed from the supply, fostering scarcity and potential value appreciation over time. Specifically, a portion of transaction fees is allocated as follows:
Liquidity Providers (LPs) receive a percentage, incentivizing robust liquidity maintenance.
VeVOLT Holders gain a share, promoting long-term holding with increased rewards.
A set amount is burned, creating a consistent deflationary pressure.
💡 Example: a $1000 transaction in the FUSE/VOLT v3 pool incurs a 0.3% fee, resulting in $2.50 to LPs, $0.25 to VeVOLT Holders, and $0.25 burned. Scaling this to 1000 transactions a day, $2500 is distributed to LPs, $250 to VeVOLT Holders, and $250 worth of VOLT is burned.
This model is designed to decrease the total circulating supply of VOLT progressively, thus enhancing the token's long-term economic sustainability. Additionally, Voltage is committed to burning 50% of the fees earned on v2 pools, contributing further to the deflationary model.
Voltage v2 VS v3 summary
| Voltage v2 | Voltage v3 | |
|---|---|---|
Native Token | VOLT | VOLT |
Liquidity Formula | Constant Product (x*y=k) | Concentrated Liquidity |
Fees | 0.30% | 0.01%, 0.05%, 0.30%, and 1%. |
Liquidity Fungibility | Fungible | Non-Fungible |
Capital Efficiency | No | Yes |
3) Updated Fee Structure:
Voltage v3 introduces a new fee structure to enhance tokenomics:
| 0.01 | 0.05 | 0.3 | 1 | Fee Tier |
|---|---|---|---|---|
0.00833 | 0.04167 | 0.250 | 0.83333 | To LPs |
0.00083 | 0.00417 | 0.025 | 0.08333 | To VeVOLT Holders |
0.00083 | 0.00417 | 0.025 | 0.08333 | Burned |
4) Tutorial
Welcome to the Voltage Finance v3 liquidity provision tutorial. Follow these steps to become a liquidity provider (LP) and start earning on your crypto assets.
Step 1: Access Voltage Finance DEX
Visit the Voltage Finance platform and navigate to the 'Pools' tab on the main menu.
Step 2: Connect Your Wallet
Click on the ‘Connect Wallet’ button located at the top right corner of the interface.
Select your preferred wallet service and sign in to connect it to the platform.
Step 3: Select the V3 Pools
On the 'Pools' tab, switch to the 'V3' section to view available v3 pools.
Choose the pool you want to provide liquidity to, such as VOLT-WETH.
Step 4: Add Liquidity
Click on the ‘+ Add Liquidity’ button associated with your chosen pool.
Step 5: Deposit Your Assets
Enter the amount of VOLT and WETH you wish to provide. You can use the 'Max' button to quickly commit all your available tokens.
Select your preferred fee tier, which can be 0.01%, 0.05%, 0.3%, or 1%. The tier you choose will determine the trading fees you'll earn from swaps.
Step 6: Set Your Price Range
Decide on the price range within which you want to provide liquidity. This is where your assets will be active and earning fees.
You can select a specific range or choose 'Full Range' to cover the entire price spectrum.
Step 7: Review and Confirm
Once you've input your amounts and selected your price range, review the details.
Ensure that you're happy with the deposit amounts, the price range, and the potential fees.
Step 8: Approve and Supply
Confirm the transaction in your wallet when prompted.
Your liquidity will now be added to the pool, and you'll receive special LP tokens representing your position.
Step 9: Track Your Position
Go to the 'My Pairs' tab to view your active liquidity positions.
Here you can monitor performance, collect fees, or adjust your position as needed.
Final Notes:
Remember, providing liquidity in concentrated pools like in Voltage v3 comes with the risk of impermanent loss, especially when the market moves outside your set price range.
Be prepared to manage your position actively or to choose a broader range to mitigate this risk.
With your liquidity now provided, you're an integral part of Voltage Finance v3's ecosystem, directly benefiting from trading fees while supporting the platform's liquidity and overall health. Thank you for contributing to Voltage Finance – where your assets work for you!
For any further assistance or queries, refer to our detailed documentation or contact our support team.
5) FAQ
What happens when the price of tokens goes outside the set price range? Does the entire position liquidate to one of the coins in the pair?
When the price moves out of the set price range, liquidity becomes inactive and stops earning fees. User can remove their funds from the position and no liquidation occurs.
The underlying assets are out of price range so the position stops earning fees. We are developing tools for active liquidity management that will enable the community to take advantage of v3's features without the need for continuous active position management
How do swap fees get paid?
Fees are not paid in LP tokens, they are paid either in token A or token B. Go under ‘my pairs’ to see how much of the fees you have accumulated and also claim. The NFT you received when setting up your LP position represents your ownership of the position.
How is impermanent loss managed in concentrated liquidity pools?
Impermanent loss can occur when the market price of tokens in a liquidity pool diverges significantly from the price at which they were deposited. In CL pools, this risk may be higher due to the concentrated price ranges. LPs should be aware of market trends and adjust their positions accordingly to mitigate potential losses.
Can I adjust my liquidity position once it's set?
Yes, you can adjust your position in a CL pool. This involves withdrawing your liquidity and redeploying it at a different price range. This flexibility allows LPs to react to market changes and optimize their fee earnings.
How do I determine the fee tier to use?
Trading Fees 0.01%: For assets such as stable pairs, where prices are expected to match, the impermanent loss is low, and traders and LPs typically agree on the lowest fee tiers. This is the example of USDT/USDC above.
Trading Fees 0.05%: For assets with higher impermanent loss or less robust liquidity, traders and LPs may agree on a higher fee tier, providing more fee revenue and incentive for LPs to provide liquidity and overcome impermanent loss. This fee tier is intended for assets that are volatile, but still relatively well-traded, or expected to have a higher impermanent loss.
Trading Fees 0.3%: This fee tier is for more exotic or less frequently traded assets, where the higher fee provides traders access to these assets while still allowing LPs to earn sufficient fee revenue e.g WFUSE/USDC
Trading Fees 1%: The highest fee tier is intended for assets that are traded the least frequently or have an even higher impermanent loss. The higher fee tier provides a great incentive for LPs to provide liquidity and overcome impermanent loss, while still enabling traders to access these assets.
💡 Risks and Considerations Engaging in concentrated liquidity pools involves certain risks, such as impermanent loss and the need for active management. LPs should consider these factors and their investment strategy when participating in Voltage v3 pools.
6) Contracts and audits
For transparency and trust, the following contracts are integral to Voltage v3 BETA:
Voltage V3 Factory: 0xaD079548b3501C5F218c638A02aB18187F62b207
Voltage V3 Router: 0xc54eDce285C4645E160eaEaBEb8624c5b9b52dd8
NFT Position Manager: 0xE38b82A4829B21a0b179E40E64ab7b1e5aedE119
Fee Structure and Distribution Contracts: More information on this will be added later.
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