Pushing the Frontier of On-Chain Liquidity Engineering

Peer-reviewed finance for DeFi builders, LPs and risk desks. Dive into the research that transforms an LP token from a passive yield chip into a fully hedgable, securitisable asset-class.

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4 foundational papers

End-to-end LP derivatives stack

Up to 75% downside protection

0 inflationary token emissions

Whitepapers

1. Evaluating Liquidity Provision Strategies for Automated Market Makers

Jan 31 2023 – 8 pp.

Why read: Quantifies when AMM yield offsets impermanent-loss drag. Introduces the y > σ²/8 benchmark LPs quote today.

ChatGPT O3 One-Minute Read

LP tokens behave like a log-normal asset with half the spot drift and a –σ²⁄8 convexity penalty. Liquidity provision only beats HODLing when pool yield clears that hurdle.

Gemini 2.5 Key Takeaways

Defines "volatility drag" and gives the simple rule y > μ/2 + σ²/8 for expectation parity (or y > σ²/8 risk-adjusted) between LPing and HODLing.

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2. The LP Forward Contract: Quantifying Liquidity-Position Risk in DeFi

Feb 17 2023 – 7 pp.

Why read: The first tradable hedge for LP risk—strips out AMM yield, prices purely with Black-Scholes.

ChatGPT O3 One-Minute Read

Shows LP spot – LP forward = fair cost of farming yield; makes impermanent-loss insurance an explicit premium.

Gemini 2.5 Key Takeaways

Defines the forward, derives closed-form price, and decomposes any LP into "price risk" + "yield leg". Perfect building block for hedging desks.

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3. Liquidity Position Options: Transforming DeFi with Novel Risk Management Primitives

Mar 01 2023 – 8 pp.

Why read: Introduces LP calls & puts; proves power-½ transformation unlocks Black-Scholes closed forms.

ChatGPT O3 One-Minute Read

LP options let LPs cap impermanent loss or sell volatility; establishes LP put-call parity CLP – PLP = FLP.

Gemini 2.5 Key Takeaways

Options pave the way for volatility trading & structured notes on LP risk, mirroring TradFi equity-derivative markets.

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4. A Novel Financial Instrument for DeFi: Liquidity Protection Notes

Mar 15 2023 – 6 pp.

Why read: Packages a zero-coupon bond + LP options + boosted yield into the LP Note—75% downside protection without inflationary emissions.

ChatGPT O3 One-Minute Read

LP Notes recycle project treasury tokens to fund principal protection, moving "mercenary liquidity" to locked, project-owned depth.

Gemini 2.5 Key Takeaways

Explains collateral mechanics and why LP Notes outperform classic liquidity-mining on both cost and TVL stickiness.

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