Fringe Finance Unveils Groundbreaking Support for LP Tokens
Introduction
Fringe Finance is excited to announce our upcoming Q3 2024 release, which will deliver unparalleled support for LP tokens on our platform. This groundbreaking development unlocks a world of opportunities for LP token holders, enabling them to maximize the capital efficiency of their assets and participate in a wide range of sophisticated financial strategies.
Unlocking the Potential of LP Tokens
With over $3.5 billion in compatible LP tokens across the chains on which Fringe currently operates, this new feature addresses a critical pain point for LP token holders. Until now, these holders have had their capital locked up in LP tokens with few venues to deploy them effectively. Fringe’s innovative solution empowers LP token holders to utilize their assets in a variety of use cases, all without the need to close their LP DEX positions.
A Suite of Powerful Use Cases
On the Fringe platform, LP token holders can now deploy their assets as either capital or collateral to undertake the following use cases.
- Secure Loans: LP tokens can be used as collateral to borrow any asset listed on Fringe. This allows you to short assets without leverage, or to borrow stables to deploy elsewhere in the DeFi ecosystem or cover short-term expenses.
2. Participate in Leveraged Trading: By depositing your LP tokens as margin, you can speculate on any of Fringe’s listed assets using our Margin Trading facility.
3. Amplify Exposure: Fringe’s Amplify facility enables LP token holders to gain additional leveraged exposure to their LP tokens.
4. Seek Extra Yield: By lending your LP tokens to borrowers and margin traders, you can generate additional yield on your holdings.
5. Hedge the more-volatile underlying asset: Fringe allows you to hedge your exposure to the more volatile underlying asset.
6. Hedge both underlying assets: Fringe allows you to hedge your exposure in varied ways — hedge against both underlying assets and impermanent loss.
- Partially hedging both underlying assets.
- Hedging impermanent loss.
7. Yield Exposure: If you expect an LP token’s trading fees will exceed its impermanent loss, Fringe allows you to express that opinion without being exposed to the price of the LP token’s underlying assets. i.e. isolate your exposure just to the LP token’s yield.
This can be achieved by using Margin Trade by going long the LP token and short the LP token’s underlying asset pair. Not only does this position allow you to isolate your exposure to just the LP token’s yield, it enables amplified exposure to this yield.
- You will need to open two positions — one for each of the LP token’s underlying pair of assets.
a) Fringe V2 requires each position to be opened using a separate account due to them sharing the same long asset (the LP token in this case).
b) Fringe V3 will allow this all in one wallet given Fringe V3 supports pooled collateral and a more intuitive long/short position opening.
8. Negative Yield Exposure: Not only can Fringe provide isolated exposure to an LP token’s yield, it can also be used to profit when an LP token’s impermanent loss exceeds its trading fees.
This is achieved by taking out the opposite of the above position. i.e. use either Fringe Borrow or Margin Trade as follows:
- Fringe Borrow: to open two positions where the collateral assets are each of the LP token’s underlying assets and where you borrow the LP token.
- Fringe Margin Trade: to open two positions where the long assets are each of the LP token’s underlying assets and where the short asset is the LP token.
This can be achieved using a single wallet on Fringe V2.
Using Fringe Borrow
Using Margin Trade
9. Short LP tokens: Fringe’s Margin Trade facility also allows you to short LP tokens. The mechanism is similar to that described above for Negative Yield Exposure, but any collateral can be used.
See our User Guides and Use Cases section in our docs as we progressively release tailored user guides on how to achieve these and other use cases.
Empowering DeFi Projects
Fringe’s support for LP tokens also presents a unique opportunity for DeFi projects that actively provide liquidity to specific DEX pools. These projects can now liberate the value in their LP tokens to cover operational costs, R&D, and other investments without removing any of their liquidity. If you are a project and have questions about supporting your specific LP token, please contact us.
Seamless User Experience
Handling LP tokens on a lending and margin trading platform has inherent complexities, which Fringe performs automatically for our users. Seamless. This includes wrapping and unwrapping the LP tokens to and from the underlying assets when opening and closing leveraged trading facilities, when performing ‘repayments using collateral’ and when liquidating positions to ensure efficient liquidation operations to assure liquidator participation for platform stability. Users are not required to undertake any of these operations themselves, therefore resulting in a seamless, intuitive user experience. It is innovations like this that position Fringe to provide the greatest utility to LP token holders and to maximize platform adoption.
Robust Security Measures
Fringe recognizes the potential risks associated with supporting LP tokens, such as market price manipulation attacks. To mitigate these risks, Fringe has implemented an extensive set of security measures, including:
- Ensuring supported LP tokens do not involve underlying assets with callback functionality, to prevent re-entrancy attacks
- Employing a Fair LP Token Pricing Formula that accounts for potential imbalances in AMMs
- Utilizing a non-rehypothecation model to prevent collateral borrowing and donation attacks
- Implementing a New Price Oracle Model and tunable asset parameters to manage volatility and risk
By adopting these stringent security protocols, Fringe provides a secure and stable environment for DeFi users to lend, borrow, and trade using LP tokens.
The Future of DeFi with Fringe Finance
Fringe Finance’s support for LP tokens represents a significant leap forward in the DeFi space, empowering users and projects alike to maximize the potential of their assets. As we prepare to release user guides and instructional videos detailing how to execute each of these use cases, we encourage interested users to contact us with questions or suggestions for how we can better cater to their needs.
Join us on this exciting journey as we continue to innovate and unlock new avenues for growth and success in the ever-evolving world of DeFi.
Fringe Finance — DeFi for Everyone.
