JLP Pool
Users can become Liquidity Providers (LPs) by allocating their assets or tokens into the Jupiter Liquidity Provider Pool (JLP Pool) and in return, you will get the JLP token. The JLP pool receives 70% of the fees, and forms an APR for all JLP holders. This APR is collected within each JLP token, whenever someone makes a trade. There is no need to "stake" or "harvest" your yield.
JLP token is also a SPL token. So, it can be transferred like any SPL tokens. AMM pools can also be set up for trading JLP token as well.
Note: JLP is a liquidity token for the Jupiter Perpetuals platform, and JUP is the governance token of the entire Jupiter platform.
The best way to purchase or exit JLP is always via Jupiter Swap.
JLP, Liquidity Provider Token
JLP, or the Liquidity Provider token, represents a meticulously constructed index of assets designed for swaps and leverage trading.
Liquidity providers serve a crucial role as they act as counterparty to traders. When traders seek to open leverage positions, they borrow tokens from the pool. Liquidity providers, in return, earn fees from these leverage trading activities, along with borrowing fees and earnings from swaps. As a JLP holder, you receive 70% of the fees generated by the trading exchange. This amount is directly reinvested into the JLP, increasing the price of JLP, facilitating continuous compounding of yield and earnings.
The exchange generates fees and yield in three ways:
- Opening and Closing Fees of Positions
- Borrowing Fees of Positions
- Trading Fees of the Pool
The fees are being compounded into the pool hourly.
It is essential to note that pool earnings and losses (index token appreciation/depreciation) are not factored in the overall yield calculation.
Risks Associated with Holding JLP
JLP is denominated in USD. During a bull market, JLP may not outperform SOL, ETH, or BTC. It is suggested to consider swapping stable tokens (USDC/USDT) into JLP to potentially benefit from yield generated by perpetual trading activities. Please note that this is not financial advice.
Now, let's explore some of the risks associated with holding JLP:
Profit and Loss (P&L) Dynamics: Traders' P&L from perpetual trading impacts the JLP pool. If a trader incurs a net positive P&L, the losses are sourced from the JLP pool to compensate the trader. Conversely, if a trader's P&L is net negative, the gains are deposited into the JLP pool for LP holders.
JLP pool will lose in token value but not in USD value because the underlying token value in the pool appreciate in value as well.
Read more about a reasearch from community member on how this work. https://skribr.io/app/article/exploring-jupiters-perpetual-futures-a-comprehensive-research-analysis/
Impermanent Loss: The JLP pool consists of both stable and non-stable tokens. Fluctuations in token prices can affect the value of JLP. As a result, users may find that their withdrawn tokens are worth less compared to their initial deposit. Additionally, deposit and withdrawal fees for the JLP Pool may further reduce the number of tokens withdrawn, particularly for shorter holding periods.
Can JLP go down? Yes, JLP in USD value will go down when the fees generated are lower than assets depreciation and payout from traders' profit.
Adding/Removing Liquidity
When an LP adds liquidity to the JLP pool, they increase the amount of liquidity in the total TVL (Total Value Locked) which increases the liquidity available on the trading side.
Any Liquidity providers (LPs) can acquire JLP by swapping for it on Jupiter Swap. Jupiter Swap will find the best price to acquire JLP for you, automatically. This can either be purchasing it off the open market, or swapping into a desired asset and depositing that into JLP directly. Use Jupiter Swap for a frictionless experience of getting JLP.
This would also apply to withdrawing, simply swap out of JLP into your desired asset.
And at the point of depositing assets into JLP pool, the protocol will price in the USD value.
Note: JLP usually trades at a slight premium over the Virtual Price rate. This is due to the demand for JLP outweighing the TVL caps set for JLP. When TVL caps are raised, this premium closes. The team regularly increases the TVL caps to keep the premium in check. Swap for JLP when the caps are raised to minimize the premium paid.
Virtual Price, Market Price and AUM Limit
- Virtual Price = Sum of all JLP Assets (in USD) / No. of JLP in circulation
- Market Price = Virtual Price + Market-assigned Premium (when AUM Limit is hit)
Usually, users can mint new JLP or redeem (burn) them at the Virtual Price. However, when AUM Limits are hit, new minting of JLP is disabled to cap the amount of TVL in the pool.
When this happens, the demand for JLP on the market usually leads to a premium for JLP compared to the virtual price.
You may sell your JLP for the Market Price at any-time. If the Market Price is below the Virtual Price, your JLP tokens are redeemed (burned) at the virtual price instead of sold at the market price.
You can view the current TVL and AUM Limit on the main UI.
Target Ratio and Fees
In the JLP pool, every token has a specific target ratio or weightage.
The transactions involving the addition or removal of liquidity have the primary purpose of adjusting a token's ratio in the pool to align it more closely with the predefined target, these transactions can be JLP deposit, JLP withdrawal, and token swap from the JLP pool.
Transactions that move the token's ratio away from the target incurs additional fees while instructions that move it closer to the target get a fee discount. The fee is based on the swap fee.
Fee Calculations
| Action | Fee |
|---|---|
| Opening a Position | 10 BPS |
| Closing a Position | 10 BPS |
| Swap Fee | Between 0 BPS to 200 BPS depending on pool weightage |
| Borrow Rate | 1 BPS/hour x token utilization percentage |
Fee calculation for opening and closing positions involves the volume of these transactions, multiplied by the fee percentage of 0.1%.
The borrow fee, often termed as the hourly borrow fee, is computed as follows:
hourly borrow fee = (tokens borrowed / tokens in the pool) x 0.01% x position size
Swap fee for the pool typically ranges between 0% and 2%.
Example Yield
To provide an estimated perspective, you can calculate potential revenue by taking Jupiter perpetual exchange's daily or weekly total volume and multiplying it by a fee percentage. For instance:
- Total Daily Volume: 50 million
- Fee Percentage: 0.1%
- Revenue Share Percentage: 70%
Using these values, the calculation would be as follows:
Total revenue to be shared between JLP pool holders:
$50M x 0.1% x 70% = $35,000
To determine your specific share or weight in the total JLP pool, use the following formula:
your_pool_contributed_amount / total_pool_amount x 100 = your_pool_percentage
For example:
- Your contribution: $1,000
- Total pool amount: $4,000,000
- Your share percentage: 1,000 / 4,000,000 x 100 = 0.025%
Finally, you can calculate your generated revenue share by multiplying the results of the first and second calculations:
revenue share you generate = $35,000 x 0.025% = $8.75
Every Monday, at ~ UTC 18:00, the Estimated APY figure is updated with the above calculation, by using the previous week's fees and estimating an APR and APY for users.