Timeswap liquidity
Liquidity providers (LPs) fund Timeswap's fixed-term loan pools with a single supplied asset and earn fees on interest. Their returns also depend on changing pool rates and borrower repayment. The app's pool-data outage notice says new liquidity additions are disabled while existing positions can still be closed.
- Pool Terms
- Each pool is identified by its asset pair, transition price and maturity.
- Position Receipt
- ERC-1155 Liquidity Tokens (LT) represent the LP's share of pool liquidity.
How Do LPs Earn Fees?
Timeswap allocates fees charged on interest to liquidity providers: 10% of the interest that borrowers pay and 10% of the interest that lenders earn. These percentages describe charges on interest amounts, not a return on the LP's total deposit. The documented interface shows lender and borrower interest figures with the applicable fees included.
Fee income depends on activity in the pool. Fees are recorded as Bond Tokens (BT), which are burned to redeem the underlying assets. The value of those claims also depends on how the pool settles.
Deposit Asset and Pool Components
The supplied asset depends on the relationship between the token pair's market price and its transition price (TP). The TP is the exchange ratio that the pool uses between its two tokens. Arbitrage can change which token occupies the supplied reserve, so a single-asset deposit does not ensure an exit in the same token.
An LP contribution supports both lendable principal and an interest component. The interest component acts as the counterparty to lenders' interest claims, including when borrowing demand falls short. Adding liquidity in the existing reserve ratio leaves the pool's quoted interest rate unchanged; subsequent lending and borrowing can move that rate.
Why Do LP Returns Vary?
An LP's interest component is exposed to divergence loss or profit. For a position held to maturity, the average pool annual percentage rate (APR) during that position affects how much this component recovers. An average below the entry APR can leave less interest than the LP initially funded, while an average above it can produce divergence profit. Transaction fees contribute separately to the total proceeds.
The principal component is outside this interest-rate divergence calculation, but borrower defaults can change its settlement asset. Collateral from loans left unpaid at maturity is forfeited and distributed to lenders and LPs. An LP claim can therefore include collateral instead of the original supplied token, with exposure to that collateral's market value.
LP Claims Through Maturity
| Stage | Position and Claims | Timing and Conditions |
|---|---|---|
| Liquidity Addition | LT represent the liquidity share, while BT represent the supplied-principal claim. | At entry. The app's outage notice says new liquidity additions are disabled. |
| Pool Participation | The LP receives interest-component BT and earns transaction fees as the pool is used. | Interest-component BT accrue each second until the pool's stated maturity. Fees depend on transaction activity. |
| Maturity Settlement | Closing the LP position and redeeming its BT releases the underlying claims to principal, interest and fees, including allocated defaulted collateral. | After maturity. The settlement assets depend on borrower repayments and defaults. |
Can LPs Remove Liquidity Early?
Early LP withdrawal requires available pool liquidity. LPs burn LT to remove their liquidity share, and the amount recovered depends on the reserve ratio at exit. The app notice's statement that existing positions can be closed remains subject to the liquidity needed for an early LP withdrawal.
A lower exit APR than the entry APR can reduce the remaining interest component recovered. A higher exit APR can increase that component, but heavier borrowing can also make principal scarce. Where that borrowing leaves insufficient liquidity, an LP may recover only part of the principal before maturity and must wait until maturity for the remainder.