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  • LP Vault
    • Overview
    • Hanji Vault
    • Single-Token LP Vaults
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  1. LP Vault

Single-Token LP Vaults

Single-Token LP Vaults represent a newer approach to liquidity provision on Hanji, engineered for LPs who wish to maintain primary exposure to a specific single asset while still earning rewards and contributing to market liquidity.

Objective: The primary objective of Single-Token LP Vaults is to allow LPs to provide liquidity while maximizing their exposure to a chosen individual asset (e.g., XTZ, ETH, BTC, or USDC). A key design goal is the significant minimization of impermanent loss, a common risk in traditional dual-asset liquidity pools.

Core Characteristics: These vaults share several common characteristics:

  • Targeted Asset Exposure: While striving for up to 100% exposure to their designated main asset, these vaults are designed to maintain, on average, 80-90% exposure to this main asset.

  • Residual Assets: The remaining 10-20% of the vault's holdings may consist of residual assets (typically the quote currency like USD stablecoins, or other assets acquired during market-making operations) which are actively managed.

  • Impermanent Loss Minimization: Through strategies like predominantly one-sided quoting and active rebalancing towards the main asset, these vaults aim to significantly reduce the risk and impact of impermanent loss.

  • Tracking Error: LPs should be aware that a "tracking error" can occur. This means the actual weight of the main asset might fluctuate and could, for periods, remain closer to the 90% mark (or slightly vary) due to market dynamics and the rebalancing mechanisms.

Available Vaults and Mechanics:

Hanji is introducing four initial Single-Token LP Vaults:

  1. hXTZ Vault (Tezos Exposure)

  2. hETH Vault (Wrapped Ethereum Exposure)

  3. hBTC Vault (Wrapped Bitcoin Exposure)

  4. hUSD Vault (USDC Exposure)

A. hXTZ, hETH, and hBTC Vaults: These vaults are tailored for LPs who want to maintain primary exposure to XTZ, ETH, or BTC, respectively.

  • Quoting Mechanism:

    • These vaults (hXTZ, hETH, hBTC) are primarily responsible for quoting the ask side of their respective USD-paired order books (e.g., the hXTZ vault quotes asks on XTZ-USD). This means they are offering to sell their main asset (XTZ, ETH, or BTC).

    • When these ask orders are executed (i.e., the main asset is sold for the quote currency), the vault strategically uses the acquired quote currency to buy back the main asset from the bid side of the order book. This rebalancing aims to restore the vault's high exposure to its main asset.

  • Example (hXTZ Vault): The hXTZ vault primarily holds XTZ. It places sell orders for XTZ. If XTZ is sold for USD, the vault then uses that USD to place buy orders for XTZ, working to replenish its XTZ holdings towards the 80-90% target.

B. hUSD Vault: This vault is for LPs wanting to maintain primary exposure to a USD-pegged stablecoin.

  • Quoting Mechanism:

    • The hUSD vault quotes the bid side for multiple specified order books, offering to buy various crypto assets using its USD stablecoin reserves.

    • Initially supported order books include: XTZ-USD, BTC-USD, and ETH-USD.

    • When its bid orders are executed (e.g., hUSD is used to buy XTZ), the vault's crypto asset holdings increase. It then manages this inventory to maintain its target exposure to USDC.

  • Example (hUSD Vault): The hUSD vault primarily holds USDC. It places buy orders for XTZ, BTC, and ETH using these reserves. If it buys XTZ, its XTZ holdings increase, and these are managed to maintain the 80-90% target USD stablecoin exposure.

Motivation and Benefits for LPs:

  • Hold Preferred Asset: Allows LPs to provide liquidity while largely retaining exposure to a specific asset they wish to hold long-term, rather than having it frequently converted to other assets.

  • Reduced Impermanent Loss: This is a significant advantage. The focus on single-sided liquidity and active replenishment of the main asset helps protect LPs against the value divergence often seen in traditional 50/50 AMM pools, especially in trending or volatile markets.

  • Clearer Exposure Profile: LPs have a more straightforward understanding of their primary asset exposure and associated risks.

Deposits and Withdrawals:

  • Deposits: LPs typically deposit the vault's designated main asset (e.g., XTZ into the hXTZ vault, USDC stablecoin into the hUSD vault).

  • Withdrawals: Withdrawals are typically processed in the vault's main designated asset.

  • Fees:

    • A fixed fee of 0.2% applies to all deposits and withdrawals.

    • An additional variable fee, ranging from -0.2% (a rebate) to +0.2% (an additional fee), is applied. This variable fee is determined by the transaction’s impact on the vault's liquidity and rebalancing needs, potentially rewarding transactions that are beneficial for the vault's state.

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Last updated 9 days ago