Providing liquidity into one of Azuro's pools exposes the LP to virtually all betting markets supported by the respective pool. It's an opportunity to get 1-click exposure to thousands of betting markets.
The liquidity pools earn through the spread embedded in the odds on which bettors place bets. The profit of the liquidity pool is the 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 bettors, and betting 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:
- 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.
- The daily returns are then annualized for a one-year period.
- There is a significant chance that liquidity positions held under a week can 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.
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 winnings starts with markets that are created after the deposit is made. This means that it is very likely that a new liquidity position shows negative returns first few days. Normally most markets are live for ~2 days in total, so the initial negative skew is very short.
New liquidity positions experience an initial negative skew. It is most pronounced in the first 1-2 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.
When a user withdraws liquidity it immediately loses exposure to the pool (i.e. to all the unresolved betting markets).