Merging Session Liquidity
DXS is merging the session liquidity of both the BSV liquidity pool and the USD liquidity pool
Liquidity providers earn returns from ALL collateral markets on DXS (BSV, USD and upcoming ETH, BTC and PAXG). This means that BSV liquidity stakes will receive payments from every user and don’t become obsolete if trade volume on DXS is dominated by non-BSV collateral trading in the future.
Both your liquidity stakes and the BSV pool remain unchanged! Only trading sessions (0.33% of each pool every 8 hours) are merged. You won’t notice any difference, apart from receiving more liquidity payments (as a result of greater trading volume).
Simply put, BSV session liquidity will be used to pay USD profits, and vice versa. Consequently, USD session losses will be used to pay back the BSVs used before.
A more technical explanation along with examples are included at the bottom section of this post.
The BSV liquidity pool will support more trading volume (increasing risk). It also means that the BSV liquidity pool will get the benefit of more trading losses in the future (decreasing risk).
In fact, merging session liquidity does not change the risk / reward ratio of being a liquidity provider. The exact same industry assumption is applied: more traders lose than win. Excess losses accumulate in the liquidity pool as surplus and protect liquidity providers from excess profit taking:
DXS has a BSV liquidity pool (below left) and a USD liquidity pool (below right):
Trades on DXS fall into 8 hour trading sessions. In the screenshot above, the current trading session is set to close in 6 hr 33 min. When the trading session closes, the gains of all realized winning positions are paid out in full. This is provided there is enough session liquidity.
Currently, session liquidity is separate between pools. Using the above image as an example, BSV session liquidity is $5,292 and is dictated by the following formula:
= (liquidity pool * 0.33%) + (0.96 * session losses) – session gains
Looking at the above image. The BSV trading session would have started with $5,010 of liquidity ($1,518,200 * 0.33%). Session liquidity is now $5,292. That means, gains in this particular session must currently be less than 96% of losses by $282 ($5,292 – $5,010).
Why 96% of losses in the formula above? This is because 3% of all realized losses are sent daily to the liquidity pool’s contributors as interest and 1% of all realized losses are contributed to a bug fund.
Merging session liquidity between the BSV liquidity pool and the USD liquidity pool means that session liquidity would be $5,652.62 ($5,292 + $360.62) irrespective of whether a trader is using BSV-collateral or USD-collateral.
To explain the mechanism, let’s use the same liquidity pool numbers:
To explain the merged session liquidity mechanism, we will walk through three trade examples that use the below information:
- BSV liquidity pool = 40,366.92 BSV @ $37.61 = $1,518,200
- BSV session liquidity = $5,292
- USD liquidity pool = $109,291
- USD session liquidity = $360.62
- Merged Session Liquidity = $5,292 + $360.62 = $5,652.62
- BSV/USD = $37.61
- Trader closes a USD-collateral trade for $1,000 profit
- $1,000 is paid to the trader at the end of the trading session
- $360.62 of this amount is paid from the USD liquidity pool’s session liquidity
- $639.38 of this amount is paid from the USD liquidity pool
- $639.38 / 37.61 = 17 BSV is paid from the BSV liquidity pool’s session liquidity to the USD liquidity pool’s offset account:
- BSV/USD = $40
- Trader closes a USD-collateral trade for $100 loss
- $100 * 3% = $3 is paid to liquidity providers
- Paid proportionally by stake size to both BSV and USD liquidity providers
- $100 * 1% = $1 is paid to the bug fund
- Because the USD offset account has a positive balance of 17 BSV, the entire net loss of the trade of $100 - $4 = $96 is valued at the BSV/USD rate of $40 and 96 / 40 = 2.4 BSV is sent from the USD offset account to the BSV offset account
- BSV/USD = $50
- Trader closes a USD-collateral trade for $1,000 loss
- $1,000 * 3% = $30 is paid to liquidity providers
- Proportionally by stake size to both BSV and USD liquidity providers
- $1,000 * 1% = $10 is paid to the bug fund
- Because the net loss is greater than the USD offset account’s balance of 14.6 BSV, part of the loss 14.6 * 50 = $730 is used to zero out the USD offset account. The remaining net loss $960 - $730 = $230 accumulates in the USD liquidity pool as a surplus
Yes. An offset account cannot exceed the value of the native pool’s surplus. Take the BSV liquidity pool for example:
- Liquidity pool size = 40,680 BSV
- Liquidity provider contributions = 29,937 BSV
- Liquidity pool surplus = 10,743 BSV
- The offset account cannot exceed +10,743 BSV (in the USD offset account)
- If exceeded, available session liquidity for USD-collateral trading defaults to only USD session liquidity (no longer merged with BSV session liquidity)
The same mechanism is true for the USD liquidity pool:
- Liquidity pool size = 109,261 USD
- Liquidity provider contributions = 108,652 USD
- Liquidity pool surplus = 609 USD
- The offset account cannot exceed +609 USD (in the BSV offset account)
- If exceeded, available session liquidity for BSV-collateral trading defaults to only BSV session liquidity (no longer merged with USD session liquidity)