V3 pair Deposit Policy
V3 Pair Deposit Policy
1) Users can deposit assets directly by entering the pool's exchange rate (price) that corresponds with the price range they are currently depositing.
2) Users can deposit when they have two assets or even just one. In the case of two asset deposits, no swap occurs, but in the case of a single asset deposit (A or B), the smart contract swaps and deposits assets at the optimal ratio based on the current pool exchange rate. If a swap is required, V2 and V3 pools are used as swap paths and transaction fees apply. Fees are based on the pool's transaction fee rate.
3) Pair deposits are made after swap fees are subtracted. When swapping, the larger the transaction size (quantity), the greater the effect on the exchange rate between tokens in the pool, resulting in a difference between the current price and the price applied at the time of the exchange (price impact). Multiple runs in small quantities can reduce the impact.
4) Depending on the transaction size, there may be a price difference (Price impact) at the time of exchange, so the expected exchange rate at the time of deposit may not match the exchange rate. For this reason, deposits are only made within the transaction range (Slippage) set at the time of the swap, and if the range is exceeded, the deposit transaction may be reverted (Revert). Proceed with the deposit after checking all the information on estimated returns at the bottom.
5) After-deposit changes in asset composition
When assets are deposited in a specific price range, their composition ratio and value may change. Even when users hold two token positions at the time of deposit, if the current trading price of the token is out of the price range deposited, users' deposits will be converted to a position holding one asset with a lower value.
Suppose a user deposits assets in the price range of 1 ETH = 1,000 USDC to 1 ETH = 3,000 USDC in the ETH/USDC pair, and the ETH price drops below 1,000; in that case, their assets are converted into ETH tokens. In contrast, users' deposits will only be held in USDC tokens if ETH prices rise above 3,000 USDC.
Therefore, the user may receive (withdraw) assets with a different asset composition than at the time of the initial deposit, depending on the current token price.
6) No Rewards when the pool is out of range.
In a V3 pair deposit, assets are deposited in a specific price range where a transaction is expected to occur, and transaction fees are distributed when the asset (liquidity) is actually traded. Therefore, if the current token trading price is out of the user-deposited price range, the rewards typically distributed in the pool will not be distributed. To obtain continuous compensation, depositors must check the pool status (in range, caution, out of range) to see if a transaction occurs within the price range they deposited or migrate or withdraw the asset and re-deposit it in the valid price range.
7) V3 pair deposits, which intensively supply liquidity in a specific price range, may result in greater impermanent losses than V2 pair deposits. If token prices fluctuate greatly, depositing within a narrow price range may result in significant impermanent losses. For this reason, depositors should consider the possibility of impermanent loss and prepare for token price fluctuations before depositing their assets in the V3 pools.
Impermanent Loss: In this situation, the value of a token deposited on a DEX decreases compared to just holding it in a wallet. Impermanent loss occurs when the ratio of users' assets changes depending on the token's price fluctuation.
8) V3 deposit rewards (transaction fees, KSP, and airdrop tokens) can be claimed directly from the detail page.
Rate of Return, Expected Returns
1) APR (%)
All rates of return (%) fluctuate according to real-time conditions, such as transaction fees for each pool, token prices, stakes and concentration levels of users, and the active status of deposited assets.
2) Transaction fee rate (%)
*All examples of transaction fee profit were based on the assumption that 100% of the transaction fees generated from the V3 pool are distributed to liquidity providers (LPs, depositors). Therefore, distribution rates for liquidity providers may vary depending on governance.
<Policy on the Distribution of Transaction Fee Profit>
* Distribution Fee = Transaction fee * (User’s liquidity(A)/ Utilized liquidity(T))
Transaction fee profit is distributed when a transaction occurs within the deposited price range and according to the percentage of the user's share of the amount of liquidity including the tick in which the transaction occurred compared to the total amount of active liquidity including containing the tick at which the transaction occurred. (Transaction fee distributed per transaction occurrence point)
Users will have a higher liquidity stake if they deposit the same amount of assets at a narrower price range.
Let’s say a $1,000 asset is deposited in Full Range. In that case, as shown in Figure ①, the asset will be equally deposited in the entire price range (0~∞). However, when the asset is deposited in a narrower price range (Pa~Pb), as shown in Figures ② and ③, depositors can enjoy the effect of higher liquidity supply even with the same amount of asset.
Assume that the assets are deposited into a USDT-DAI pool in only the three types of ranges mentioned above, the figure below shows their spread of liquidity.
If the token price changes from P0 to P2 due to a transaction within the pool, User A's assets will not be used in the P0 to P1 range. Instead, user A's liquidity will be used for trading in the P1 to P2 range. The share ratio of user A in the active trading liquidity in the P1 to P2 range is (user's liquidity (A)/activated liquidity (T).
Therefore, when the trading volume and scale of liquidity in the P1-P2 section is as follows, user A earns the following amount of fee:
USDT-DAI pool transaction fee rate: 0.06%
Swap Volume: $100
User A’s liquidity in the P1 to P2 range (A): $ 1,000
Total liquidity in the P1 to P2 range (B): $ 100,000
A’s transaction fee profit = ($100*0.0006)*(1,000/100,000)= $0.0006
<Estimated TX Free Rate APR Calculation>
Calculated and displayed is the expected annual return when transaction fees from a specific pair of V3 pools are distributed to currently active liquidity.
Suppose assets are deposited in USDT-DAI pools according to price range type (Spot, Wide, Full):
If token price is converted from P1 to P2, activated liquidity(T) in the pool is as follows:
Assuming the trade volume is between the P1 and P2 range and the liquidity size (Spot, Wide, Full range) of each price range is as follows, the expected return will be calculated as follows.
USDT-DAI Pool Fee Rate : 0.06%
Latest 24 Hour Volume: $1,000
Total liquidity of the USDT-DAI pool’s P1 to P2 range (T) : $ 100,000
Liquidity supplied when depositing in Spot range (S) : $ 27,000
Liquidity supplied when deposing in Wide range (W) : $ 4,650
Liquidity supplied when depositing in Full range (F) : $ 10
* Spot Estimated Transaction Fee APR
= Pool fee for the last 24 hours *(Activated Spot Liquidity (S)/ Total Activated Liquidity(T))*100*365
= $1,000*0.0006*($27,000/$100,000)*100*365 = 5,913% annually
* Wide Estimated Transaction Fee APR
= Pool fee for the last 24 hours * (Activated Wide Liquidity(W)/Total Activated Liquidity(T))*100*365
= $1,000*0.0006*($4,650/$100,000)*100*365 = 1,018% annually
* Full range Estimated Transaction Fee APR
= Pool fee for the last 24 hours * (Activated Full range Liquidity(F)/Total Activated Liquidity(T))*100*365
= $1,000*0.0006*($10/$100,000)*100*365 = 2.19% annually
3) KSP Distribution APR (%)
<Calculation of the pool's daily KSP distribution>
A V3 pool's daily KSP distribution amount is determined as per the V2 pool's daily KSP distribution policy. The daily distribution amount is determined using the final KSP distribution rate calculated using pool voting (50%) and KSP buyback quantity (50%) tally. (View detailed KSP distribution policy)
<Calculation of estimated KSP distribution APR>
Calculated and displayed is the expected annual return when the daily KSP distribution quantity distributed in the V3 pool is distributed in currently active liquidity. KSP reward APR can also be calculated for each price range type (Spot, Wide, Full range):
* Spot/Wide/Full range type’s estimated KSP distribution APR
= Daily distribution amount of KSP * KSP price * (Each type of activated liquidity/Total Activated Liquidity)*100*365
4) Token airdrop APR
Calculated and displayed is the expected annual return when the daily airdrop token quantity distributed in the V3 pool is distributed in currently active liquidity. The airdrop return rate calculation is the same as the 4) KSP Reward APR.
* Spot/Wide/Full range type’s estimated air drop APR
= Daily token distribution quantity * Token price * (Each type of activated liquidity/Total Activated Liquidity)*100*365
5) KSP, airdrop token distribution
Following the governance policy, KSP, and airdrop tokens are distributed in real-time (based on Klaytn's block creation time) to the current active liquidity, so even if the assets were deposited within the active liquidity range the previous day, users might not receive rewards if the liquidity range isn't active at the time of distribution. Therefore, users must constantly check that their assets are within the active range. When the token price falls out of range (out of range state), the asset must be migrated or redeposited after withdrawing to earn rewards. Check out the migration guide.
pageV3 to V3 Migration Guide6) All displayed information is a real-time estimate; therefore, information may change.
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