Internal Liquidity Management

ODX maintains sufficient USDT liquidity on all supported blockchains and treats USDT on different chains as interchangeable. This approach allows cross-chain swaps without the need to bridge or burn tokens, simplifying the transaction process and reducing associated risks.

USDT Liquidity Pools:

• ODX operates USDT liquidity pools on Chains $C$ and $D$ (as per the previous usecase example).
• These pools are funded by liquidity providers (LPs) who supply USDT to the platform.

Liquidity Pool Balances and Fee Distribution

During cross-chain swaps, the liquidity pools are adjusted to reflect the movement of USDT. A small fee is charged on these swaps, which is credited to the LPs providing the USDT liquidity.

Swap Fee:

• A 0.15% fee is applied to the amount of USDT involved in the swap.
• This fee is accrued to the LPs as an incentive for providing liquidity.
• Fee can be changed in the future with governance proposal

Balance Adjustments

Let:

• $U_C$ = Amount of USDT received from swapping Asset $A$ on Chain $C$.
• $F$ = Swap fee percentage (0.15% or 0.0015).
• $U_C^{net}$ = Net USDT amount after deducting the fee.
• $L^C_{USDT}$ = USDT liquidity pool balance on Chain $C$.
• $L^D_{USDT}$ = USDT liquidity pool balance on Chain $D$.

Example:

1. Fee Deduction:

   • Fee Amount $F_{amount}$:

     $$F_{amount} = U_C \times F = U_C \times 0.0015$$

   • Net USDT Amount After Fee $U_C^{net}$:

     $$U_C^{net} = U_C - F_{amount}$$

2. Liquidity Pool Balance Updates:

   • On Chain $C$:

     • Decrease USDT Liquidity Pool by Net Amount:

       $$L^C_{USDT} = L^C_{USDT} - U_C^{net}$$

     • Increase LP Rewards by Fee Amount:

       The fee collected $F_{amount}$ is credited to the LPs on Chain $C$.

   • On Chain $D$:

     • Increase USDT Liquidity Pool by Net Amount:

       $$L^D_{USDT} = L^D_{USDT} + U_C^{net}$$

3. Net Effect:

   • Total USDT Holdings:

     The total USDT across all chains remains balanced, excluding the fee collected:

     $$L^{Total}_{USDT} = L^C_{USDT} + L^D_{USDT} = \text{Constant} - F_{amount}$$

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Fee Distribution to Liquidity Providers

• Incentivizing LPs:

  The 0.15% fee collected from swaps is distributed proportionally among the LPs who have supplied USDT to the liquidity pools on Chain $C$.

• LP Reward Calculation:

  For an individual liquidity provider $i$ with a share $s_i$ of the total liquidity pool on Chain $C$:

  $$\text{LP Reward}_i = F_{amount} \times s_i$$

  Where:

  • $s_i = \frac{\text{LP's USDT Provided}}{\text{Total USDT in Pool on Chain } C}$

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Ensuring Liquidity Pool Health

Balancing Liquidity:

ODX monitors the liquidity pools to ensure sufficient USDT is available on all chains.

Liquidity Provision Incentives:

The fee mechanism encourages LPs to provide liquidity, enhancing the platform's capacity to handle large swap volumes.

Rebalancing Strategies:

If liquidity becomes uneven across chains, ODX will implement strategies such as:

1. Incentivized Liquidity Shifts, offering higher rewards on chains with lower liquidity to attract more LPs.

2. Operational Transfers, where ODX may internally adjust liquidity using operational funds to maintain balance.

Benefits of the Fee Structure

1. Users enjoy transparent fee structure with a minimal impact on the swap amount with an assurance of sufficient liquidity for seamless swaps.

2. Liquidity Providers earn passive income through fees accrued from swap transactions, while encourages long-term participation in the liquidity pools.