Concepts
Basic Concepts
Liquidity Providers

Liquidity Providers

Providing liquidity into one of Azuro's pools exposes the LP to virtually all prediction markets supported by the respective pool. It's an opportunity to get 1-click exposure to thousands of prediction markets.

The liquidity pools earn through the spread embedded in the odds which players can predict. The profit of the liquidity pool is the difference between the tokens seeded from the pool into the Conditions and the tokens returned to the pool after those Conditions are resolved.

The more players and predicting there is on the protocol - the higher the likelihood the pool is profitable. I.e. - the longer the duration of each LP's position - the higher the likelihood that it yields positive return.

APR is calculated in two steps:

  1. The daily returns are determined by dividing the total rewards distributed to liquidity providers for resolved events within a day by the volume of the liquidity pool at the end of that day.
  2. The daily returns are then annualized for a one-year period.
🚨

RISKS:

  • There is a significant chance that liquidity positions held under a week will be in the red (in the negative).
  • There is a non-zero chance that this can extend to longer periods of time. It is estimated that for periods above 1 month the likelihood of the pools turning a profit is >99%. But this is not a certainty.

Liquidity Positions

Adding Liquidity

When a user makes a new liquidity deposit they get exposed to pool losses that may occur on the markets which are already open at the time of the deposit. The positive exposure into pool profits starts with markets that are created after the deposit is made. Therefore it is almost a certainty that a new liquidity position shows negative returns in the first few days (i.e. before it starts getting positive exposure to the new markets coming up on the protocol).

⚠️

New liquidity positions experience an initial negative skew. It is most pronounced in the first several days.

⚠️

There is a lockup period of 7 days after liquidity is deposited. This means you can provide liquidity for 7 days or more. Not less.

Withdrawing liquidity

When a user withdraws liquidity it immediately loses exposure to the pool (i.e. to all the unresolved prediction markets).