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  • Exchequer Protocol Overview
  • Protocol Concepts
    • Downside Protection
    • Liquidity Note
    • Fixed Price Sale / Auction
    • Yield Distribution
    • Upside Boost
    • Redemption
  • Note Types
    • Liquidity Note
    • Convertible Note
    • Incentive Note
  • Note Features
    • Note Types
    • Maturity
    • Upside Boost
    • Downside Protection
    • Safety Margin
    • Boosted Yield
    • 7-Day Yield
    • Time Left
    • Underlying Token
    • Pay Token
    • Protection Status
    • Collateral Dex
    • Note Price
    • Project Obligation
    • Collateral (LP) Gain/Loss
  • Offering Features
    • Signaled Interest
    • Term
    • Offering Size
    • Issue Size
    • Funding Progress
    • Liquidity Created
    • Sale Duration
    • Offering Type
    • Offering Price
    • Note Quantity
  • Signaling Features
    • Intended Investment
    • Signal Interest
  • Redemption Features
    • Note Extension
    • Note Redemption
  • Whitepapers/Research
  • Glossary
  • Integrate with Exchequer
    • Integrate with Exchequer
  • APIs
    • Exchequer Subgraph
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  • Creation Mechanism
  • Features

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  1. Protocol Concepts

Liquidity Note

Liquidity Notes are ERC-20 tokens that represent Liquidity Provider (LP) positions with built-in downside protection. As a new foundational primitive, they unlock a wide array of on-chain applications and use cases.

Creation Mechanism

Liquidity Notes are created via the following mechanism:

  1. Issuance of Liquidity Notes: The project sells Liquidity Notes—ERC-20 tokens representing downside-protected LP positions—to users.

  2. Creation of Collateralized LP Positions: The proceeds from the Liquidity Note sales are combined with tokens from the project's treasury. This combination is used to create a Liquidity Provider (LP) position in the relevant liquidity pool.

  3. Collateral Backing: The newly formed LP position serves as collateral for the Liquidity Notes. This means that each Liquidity Note is backed by the LP position, providing holders with downside protection.

By collateralizing Liquidity Notes with LP positions funded by both user contributions and treasury tokens, the mechanism ensures permissionless, trustless downside protection.

Features

A cryptocurrency project can configure Liquidity Notes to provide the following features:

  1. Downside Protection up to 75%

    By structuring the Liquidity Notes appropriately, the project can offer downside protection of up to 75% decline of the underlying cryptocurrency.

  2. Increased Trading Yield

    The project can design Liquidity Notes to provide trading yields up to 200% higher than those of equivalent standard Liquidity Provider (LP) positions.

  3. Additional Upside Potential

    Liquidity Notes can be configured to offer greater upside potential compared to standard LP positions.

By carefully adjusting the parameters of Liquidity Notes—downside protection levels, increased trading yields, and potential for additional upside—a cryptocurrency project can incentivize demand for these instruments. By configuring these levers to align with investor preferences and market conditions, the project can make Liquidity Notes more attractive, encouraging greater participation and liquidity provision.

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Last updated 7 months ago

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