Sovryn is completing Satoshi's vision of monetary sovereignty beyond simple peer-to-peer transactions. Its layer-2 solution facilitates an open-source operating system for financial primitives, including margin trading, swapping, lending, and borrowing multiple assets over multiple chains. Operating on the Rootstock Bitcoin side-chain, Sovryn transactions are merged-mined with Bitcoin by bitcoin miners to capitalize on its security model and network effects. The Sovryn financial platform is decentralized, permissionless, and never takes custody of your keys/coins. To enable trustless trades and swaps, Sovryn uses Automated Market Makers (AMMs).
An Automated Market Maker (AMM) is a decentralized protocol that prices assets based on a mathematical formula. This differs from a conventional order book, which simply stores and matches buy and sell orders. For an order-book system to fulfill an order of "buy asset X at price Y," there must also be a parallel order of "sell asset X at price Y" to match to. Alternatively, AMMs use liquidity pools that contain a balance of both assets.
Some of the AMMs employed by Sovryn use balanced liquidity pools, with 50% of the value held in each asset. Deposits to the pool must be made in both assets with equal values of each. As buying and selling take place, the relative amount of each asset changes in the pool, and the price is adjusted so that the total value of each asset remains balanced at 50% of the total. Sovryn uses the Bancor (v1) pricing formula that maintains a constant product of the amount of each asset. If this pricing formula deviates too far from the market price, arbitragers step in with buying or selling pressure to realign the price. If the relative price between the two assets moves significantly liquidity providers can experience impermanent loss.
Other pools employed by Sovryn allow for variable ratios of the two assets in the pool. These are referred to as Sovryn Dynamic Automated Market Makers (DAMMs). The Dynamic aspect of the AMM mitigates impermanent loss through dynamic pool asset ratio balancing. It also enables liquidity providers to provide liquidity in one asset or any ratio of the two assets rather than a 50/50 balance of both.
Market making is traditionally provided by a centralized market to provide liquidity for trades or swaps. AMMs remove the need for a centralized service by using liquidity providers. Liquidity providers (LPs) lock their assets in a pool that functions as a market maker in return for LP tokens—a representation and receipt of their share within the pool. Fees are generated in the denomination of the target asset. For example, a trade of USDT to BTC generates a fee amount in BTC. This fee is distributed to liquidity providers as a reward in exchange for their market-making service. See What are the fees? for details on the fees collected by the system and rewarded to providers.
The process of providing liquidity to a liquidity pool is sometimes referred to as yield farming. Yield farming refers to the fact that liquidity providers earn a yield from transaction fees and in some cases from yield farming rewards. Yield farming rewards are sometimes offered by the protocol to attract more liquidity to a pool. On Sovryn, these rewards are paid in SOV, the governance token of the Sovryn protocol. Yield farming rewards for specific pools are listed at the top of the yield farm dapp page. These rewards are subject to change as the needs of the protocol evolve. Rewards are specified in total weekly SOV rewarded to pool participants on a pro-rated basis. Pool APY shown in the graph for each pool expresses the annual yield from transaction-fee sharing and yield farm rewards combined. SOV earned by yield farming is not immediately liquid. Rewards must first be claimed from the liquidity pool from the Rewards page on the dapp. Once rewards are claimed, they are locked in a vesting contract of 40 weeks with a maximum 4-week cliff. As rewards are vested, they can be withdrawn by going to the Portfolio page on the dapp, selecting Vesting Assets, and then clicking Withdraw. This process is explained in more detail in Sovryn Rewards & Staking Fees Explained.
Yield farming is also sometimes called liquidity mining. Liquidity mining describes the process of attracting assets to a liquidity pool from the perspective of the protocol—mining liquidity from potential users and rewarding them with transaction fees and yield farming rewards.
While some AMMs require LPs to take on exposure to multiple assets, other pools on Sovryn do not. In these pools any user can provide liquidity to a pool with a single token and maintain 100% exposure to that token. For example, in the RBTC/RUSDT pool, an LP can provide RBTC only or RUSDT only as liquidity to the pool. This allows them to maintain exposure on a single asset while earning fee rewards and any yield farming rewards being offered. This is known as a Sovryn DAMM (Bancor v2) pool.
Single-sided pool list:
All other pools are double-sided. Please read the section below for details.
Pools like the SOV/BTC and ETH/BTC Liquidity Pools are double-sided ( Bancor v1) liquidity pools. To provide liquidity to the SOV/BTC pool, for example, you must provide equal liquidity value to both assets of the pool, SOV and RBTC. Other than this, the overall process of providing liquidity in the SOV/BTC pool is the same as single-sided liquidity pools. The amount of RBTC required will be automatically calculated by the protocol. Be sure to have adequate RBTC in your wallet for the amount of SOV you wish to supply to the pool AND to cover the transaction fees of providing and eventually withdrawing.
Double-sided pool list:
The contract (or current) balance indicates the number of tokens held by the contract at any time. The staked balance indicates the total amount of tokens staked by liquidity providers, and it is a record of the pool's obligation to its LPs. The current balance can diverge from the staked balance due to the volatility of one of the assets in the pool. When the current balance differs from the staked balance, the pool's weights are adjusted to incentivize arbitrageurs to return the current balance back to its staked balance. Although the arbitrage incentive does not always push the balance back to 100% equilibrium, frequent arbitrage operations guarantee that it always remains very close (slightly below or above) to the staked balance.
Within the AMM's liquidity pools, the current balance can deviate from the staked balance between the time an LP deposits liquidity and the time it is withdrawn. This could mean, if the current balance is lower than the staked balance at the time of withdrawal, the liquidity provider's share of the pool is worth less than the initial liquidity amount provided. This is called impermanent loss. It is impermanent because providers can wait for the balances to be equalized and withdrawn without suffering a loss—if the balances come back to the original ratio. Impermanent loss is a present risk that every LP should be aware of when providing liquidity. Trading fees and yield farming rewards could outweigh or at least offset impermanent loss.
The following video will walk you through the process of providing liquidity on the Sovryn platform. Alternatively, you can use the step-by-step process outlined in the video below.
The following step-by-step guide will walk you through the process of removing liquidity on the Sovryn platform. The first three steps are identical to the above mention chapter about depositing (screenshots included).
You can add the following token addresses as a custom token in your Rootstock wallet, which will allow you to see your pooled asset LP token amounts.
Note that if you deposited to your liquidity pool through the dapp and the pool is paying liquidity rewards, the LP tokens are transferred to the liquidity mining smart contract to participate in paying out the rewards. In that case the LP token balance will not appear in your wallet even after you've added the addresses. However, you should see your balance of each asset and the accumulating SOV rewards in the dapp on the yield farm page.
NOTE: You may get a notice that the Token Symbol needs to be less than 11 characters. To resolve this, click the edit button as shown in the image below, then delete any characters of your choice to get the character count to 11 or less.