Note: In April 2022, Clipper's architecture was upgraded to a novel Formula Market Maker (FMM) model, which allows for lower gas costs, broader price optimization, and smoother liquidity deposits/withdrawals. As a result, Clipper's liquidity pools are no longer explicitly capped. This article will remain in place for the sake of transparency, but note that the most accurate and up-to-date explanation of how Clipper works can now be found here.
We’re thrilled to announce that Clipper’s long-awaited community liquidity program (“CLP”), will launch on October 5, 2021!
To ensure Clipper’s ability to offer the best prices for retail traders, it needs $20M in liquidity. The first $17M was committed by institutional liquidity providers (ILPs) pre-launch. As expected, these funds have served as a stabilizing force since Clipper set sail in July.
Now everybody can participate in Clipper’s liquidity program on similar terms as Clipper ILPs! The final $3M has been reserved for Clipper’s community.
All CLP participants, aka liquidity providers (LPs), will accrue yield from every Clipper trade. They may also be eligible for additional benefits (due to regulatory constraints, at this time we are unable to provide explicit guarantees, such as in regards to governance tokens).
As with most DEX liquidity programs, participants stake their funds in a liquidity pool and in return receive a portion of the trading fees accrued on the exchange. The trading fees you collect as an LP will be added to the overall value of your deposit and can be withdrawn at the same time as your initial stake.
That being said, Clipper’s CLP has some notable differences from other DEX LPs. For one, there will likely be less impermanent loss given that Clipper relies on external price oracles to help guide pricing.
Here are some other ways in which Clipper’s community liquidity program is different:
CLP participants are limited to one deposit of up to $10K
To allow for as many liquidity providers as possible, participants’ liquidity contributions will be capped at $10K in USD value, denominated in one crypto asset.
If the community does not contribute the entire $3M within 90 days, then you are free to withdraw your initial funds in ETH, WBTC, USDC, USDT, or DAI, or as a proportional asset mix of your choosing. Otherwise, once $3M is contributed to the Community Liquidity contract, the funds will be deposited into the Clipper Liquidity Pool.
Lock-up period (until July 1, 2022)
Once in the Clipper Liquidity Pool, the tokens will be locked until July 1, 2022 (roughly 9 months). This lock prevents users from withdrawing anything to ensure a stable pool. This is the same timeline as the ILP program.
Diversification via Mixed Asset Exposure
Unlike some other liquidity programs, the real-time value of your deposit can fluctuate based on the prices of the entire liquidity pool (ETH, WBTC, USDC, USDT, and DAI) rather than just the original asset you deposited. This gives you an added level of diversification compared to other liquidity programs, which are often tied to a single asset or trading pair. And, like all other liquidity programs, the dollar value of the funds participants eventually withdraw may be valued at more or less than their original contribution.
Flexibility via Mixed Asset Withdrawals
Once the lockups expire, users will be able to withdraw their principal and accrued fees, which will be proportional to the fraction of the Clipper Pool their deposit represents. CLP participants are free to withdraw their funds in a single asset of their choice, or a combination of up to five crypto assets supported by Clipper. In other words, the assets you withdraw do not have to be the same asset type you deposited, which gives you an added degree of flexibility.
We’ve been in the DeFi space long enough to understand that DeFi users are generally put off by restrictions and mandatory lockups. But Clipper’s CLP is specifically configured to maintain a stable liquidity pool, which is the optimal way to ensure that Clipper can offer the best prices for trades valued at ≤$10K.
Essentially every other DEX on the market has placed no limit on how much liquidity you can provide, or when you can deposit and withdraw your funds. And it is precisely this lack of purposeful design that leads to suboptimal prices for most retail traders – a mathematically proven consequence of uncapped liquidity that we outlined here.
In the end, it all comes down to deliberate design.
Still have questions about the Clipper CLP? Join the Clipper Discord where we’ll be hosting an AMA on Friday, September 17 at 11 AM ET / 3 PM UTC. Ask any questions ahead of time in the #❓ama-questions channel.