Liquidity Providers

Yield earning opportunities within MondrianSwap

How Do Liquidity Providers Earn Yield?

Liquidity Providers (LPs) earn yield through trading fees collected when a trade is executed in a liquidity pool. Each trade fee is denominated in the input token used in the transaction. These fees are distributed proportionally to LPs based on their share of the total liquidity in the pool.

Additionally, Mondrian Swap charges a protocol fee, which is a small percentage of the collected trade fees. This fee is taken from the fees already collected, not from the trade itself, ensuring that traders do not experience additional costs.

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How Do I Receive My Trade Fees?

If you are a Liquidity Provider in a pool, the fees collected from trades are automatically distributed to you based on your proportional share of the pool.

📌 Trade fees are distributed in the form of liquidity pool tokens, which can be redeemed for the underlying assets or compounded to earn additional yield.

💡 Example: Let’s assume Alice, Bob, Chuck, and Diana provide liquidity to the same pool, with a total liquidity of $100. Their contributions and corresponding pool ownership are as follows:

Person	Proportional Share	Initial Value
Alice	50.0%	$50
Bob	25.0%	$25
Chuck	12.5%	$12.50
Diana	12.5%	$12.50

If the pool generates $20 in trading fees, the distribution is as follows:

• $10 is taken as the protocol fee, of which $6 is reinvested in liquidity, $3 is distributed to veMOND stakers, and $1 is sent to the treasury to support future development.

• Alice receives $5 (25% of $20)

• Bob receives $2.50 (12.5% of $20)

• Chuck receives $1.25 (6.25% of $20)

• Diana receives $1.25 (6.25% of $20)

As long as these LPs reinvest their fees, the total liquidity in the pool grows without changing their percentage share.

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How Does a Pool Determine the Price of Tokens?

The Automated Market Maker (AMM) logic determines the prices traders pay in each pool type:

• Weighted Pools follow a Constant Product Formula (similar to Uniswap but with customizable weights).

• Stable Pools use the StableSwap Formula, optimized for low-slippage swaps between pegged assets (e.g., stablecoins).

Each model ensures efficient pricing and arbitrage-driven self-balancing.

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How Does the Self-Balancing Index Fund Work?

Mondrian Swap automates portfolio rebalancing by allowing market participants to adjust the liquidity distribution through trading activity.

How it works:

📌 Instead of paying portfolio managers to rebalance a fund (like ETFs), LPs earn fees when traders rebalance the pool. 📌 Arbitrageurs naturally adjust the asset ratios in the pool by executing profitable trades, keeping the portfolio balanced.

Key Benefits for Liquidity Providers:

✅ No Active Management: Unlike traditional index funds, LPs don’t need to manually rebalance their positions. ✅ Earn Fees Instead of Paying Them: Instead of paying fund managers, LPs collect fees from traders who rebalance the pool. ✅ Capital Efficiency: Pools adjust dynamically, maintaining liquidity depth while providing optimized yields for LPs.

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Why Provide Liquidity on Mondrian Swap?

🌟 Earn passive income from trading fees. 🔄 Benefit from self-balancing liquidity pools without manual rebalancing. ⚖️ Customize your exposure with Weighted and Stable Pools. 🚀 Maximize efficiency with batch swaps and arbitrage opportunities.

By participating as a Liquidity Provider, you not only earn trading fees but also contribute to a more efficient DeFi ecosystem.