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Single-sided charging and withdrawing
DODO introduced a unilateral replenishment feature in version V1, which allows liquidity providers to replenish their existing exposures without changing them (in short, replenish whatever is available, without matching), which greatly facilitates liquidity providers.
However, at the cost of additional complexity of the system. This section will focus on the special design for unilateral replenishment scenarios. If you are using a product that is not a unilateral replenishment, you do not need to consider this section.
According to the PMM formula, the price depends on the degree of deflection of the short-side asset, and a unilateral charge to the short-side asset changes the market price. Let's take the example of when
B<B0B<B_0
.
Recharge Reward
Recall that PMM's pricing formula at this time:
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P=i(1โˆ’k+k(B0B)2)P = i(1-k + k(\frac{B_0}{B})^2)
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When
B0B_0
and
BB
are increased by equal amounts,
B0B\frac{B_0}{B}
becomes smaller and the price returns
ii
.
In the fixed-parameter rule described in the previous section, this means that more assets are bought back after the long is fully spent, i.e., the liquidity provider is profitable.
A more intuitive way to understand it: this recharge brings the inventory closer to the equilibrium, plays the role of system maintainer and so gains some reward.
The source of the reward is the slippage paid by the trader who made the system deviate from the equilibrium state.

Coin withdrawal fees

Similarly, if a liquidity provider withdraws an asset that is already in a shortage, it will make the system deviate even more from the equilibrium state.
In this case, the withdrawer will have to pay a fee. The fee is equal to the sum of the losses in the system caused by this withdrawal. This processing fee will be distributed to the rest of the people who stay in the pool.
Considering the reload bonus we mentioned above, if a market maker withdraws immediately after reloading, the withdrawal fee will be greater than the reload bonus, thus eliminating risk-free arbitrage.
It is worth noting that PMMs only incur significant reload rewards or withdrawal fees when the system is significantly out of balance and the volume of reloads or withdrawals is large. In general, traders do not need to pay attention to these two components.
Of course, traders are more than welcome to top up and earn rewards when the system is out of balance, and then withdraw coins after the system is balanced to avoid being charged fees.
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