Interactions with Potions
The Potions ecosystem is built around a series of interconnected actions that enable participants to generate yield, capitalize on arbitrage opportunities, and drive sustainable volatility. These actions—Wrapping, Unwrapping, Liquidity Provision, and Buy/Sell—play distinct roles within the ecosystem, benefiting the participants and maintaining its balance.
Wrapping
Wrapping is the process of creating derivative assets (e.g. lYEL) by depositing original assets (e.g. YEL) as collateral.
When users wrap, they:
Deposit original assets (e.g., YEL) into the Potion as collateral;
Receive minted derivative assets (e.g., lYEL) in their wallet;
Trigger a Backing Ratio rebalance, ensuring the Potion remains 100% collateralized at all times.
Ecosystem Role:
Wrapping increases the supply of derivative assets, facilitating arbitrage opportunities;
A portion of the derivatives is redistributed as incentives to support ecosystem activity.
APR Generation: users who hold derivative assets (e.g., lYEL) earn Holder APR, which comes from the increasing backing ratio over time, making each derivative asset more valuable.
Unwrapping
Unwrapping is the process of converting derivative assets (e.g., lYEL) back into their corresponding original assets (e.g., YEL), effectively removing the derivative tokens from circulation.
When users unwrap, they:
Redeem their proportionate share of the original assets (e.g., YEL) based on the current backing ratio;
Burn their derivative assets (e.g., lYEL), reducing the total supply.
Ecosystem Role:
Unwrapping reduces the supply of derivative assets, increasing the backing ratio over time;
It stabilizes the system by balancing the relationship between original assets and derivative assets.
APR Realization: By unwrapping derivative assets after reasonable time users realize their Holder APR, as each derivative token represents a larger share of the original collateral.
Liquidity Provision
Liquidity Provision (LP) involves supplying assets to parallel liquidity pools, which support trading activity and enable arbitrage opportunities.
To participate, users:
Pair their derivative assets (e.g., lYEL) with a predefined paired asset (e.g., USDC or another derivative asset, like lUSDC);
Receive LP tokens (e.g., slYEL) representing their share of the liquidity pool;
Stake their LP tokens to earn a portion of ecosystem fees.
Ecosystem Role:
Liquidity providers ensure efficient trading and arbitrage execution within the ecosystem.
LPs facilitate price discovery and support parallel liquidity pools, driving activity and volatility.
APR Generation: Liquidity providers earn LP APR, which comes from trading fees generated from buy/sell actions within parallel liquidity pools and a share of wrap fees redistributed to staked LPs.
Buy/Sell Actions
Buy/sell actions occur within parallel liquidity pools and play a central role in supporting arbitrage opportunities. Users can buy or sell original/derivative assets in liquidity pools paired with stablecoins or other tokens. Trading fees are applied to every buy or sell transaction involving derivative assets.
Ecosystem Role:
Driving volumes that sustain ecosystem activity;
Buy/sell fees support generation of LP APR.
Arbitrage Opportunities Realization: Arbitrageurs can benefit from price differences between different assets.
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