Liquidity Provider Vaults

1. Overview

Liquidity Provider Vaults are an evolution from Defx's Liquidity Engine, and has assumed responsibility as the foundational market-making system powering liquidity on Defx's perp DEX. Structured as tokenised vaults, users can deposit capital into the relevant vault contract to provide liquidity across perpetual markets. All Liquidity Provider Vaults run delta-neutral, two sided liquidity strategies that aim to generate sustainable yield without exposing depositors to directional losses.

It is designed for performance, transparency, and long-term capital efficiency.

2. Strategy

Capital is used to add two sided liquidity to Defx's order book. The vaults are market neutral, aiming to balance long and short exposure in real-time to avoid directional risk. They act as the primary liquidity layer for traders while offering depositors yield not tied to price speculation.

Unlike other AMM perp vaults that suffer from trader PnL drain or LP-side losses, these vaults do not bet against traders. This protects depositors from directional losses and avoids the common pitfall of vaults getting drained by profitable traders.

3. Yield Sources

Liquidity Provider Vaults generate yield from three primary sources:

• Funding Fees Traders on Defx pay or receive funding charges based on the perp markets' open interest. They capture the positive side of funding payments when providing liquidity across both sides of the book.

• Trading Fees They earn 50% of the DEX's trading fees.

• Liquidation Flow In cases where positions hit their liquidation price, the vaults participate in liquidations. Profits from these positions accrue back to the vault.

All yield is automatically distributed to participants, proportional to their share of the vault.

Get Started

Deposit USDC, USDT, wBTC, wETH, EURC, or POL into the respective LP Vaults here: https://app.defx.com/earn