πLiquidity Pools
Last updated
Last updated
To grasp how our liquidity pools work, it's important to understand that the shares of the strategies function as tokens with intrinsic value, independent of the pools they're a part of. This inherent value exists because each share can be redeemed, and the underlying assets it represents will be returned to the user. Therefore, a share's value mirrors the worth of its underlying assets.
Each Cadabra strategy has a corresponding Uniswap V3 pool where the token of that strategy is paired with ABRA token. That means the tokens of the particular strategy can be swapped for ABRA and vice versa via the corresponding pool.
The main intentions for having these pools are:
Linking ABRA with yield-bearing liquidity. We want to back ABRA with liquidity that generates yield, to continuously increase the value of ABRA. And there is no better option than to use our own strategies.
Whenever a strategy generates yield, it is compounded: new shares are minted and swapped for ABRA using the corresponding pool. This creates upward price pressure for ABRA.
To add new ways to enter and leave strategies, and migrate funds across strategies and chains. Users can enter/leave strategies at any time by buying/selling strategies tokens. ABRA tokens can be sent across chains.
The concept of linking ABRA with the liquidity in the form of strategy tokens is designed to increase the value of ABRA through a self-reinforcing mechanism:
As each pool holds tokens from a specific strategy, these tokens generate yield, which is then used to buy back ABRA from the same pool. This, in turn, leads to the creation of more yield as more and more strategy tokens are added to the pool.
In other words: the greater the liquidity in the form of strategy tokens held by a pool, the more ABRA tokens are acquired from that pool, subsequently adding even more liquidity. This creates a positive feedback loop that puts upward price pressure on ABRA.
Profit made by Protocol Owned Liquidity is shared between holders of veABRA tokens. The only way to receive veABRA is to lock ABRA for a time period of your choice.
The process can be visualized as follows:
