âïļCoverage Ratio
Coverage Ratio reflects a pool's solvency by comparing assets with Liabilities.
Coverage Ratio: Asset / Liability
Liability: The token amount deposited by users, also known as the Total Value Locked (TVL) of the pool;
Asset: The remaining token amount in the pool after user trades
Before you deposit liquidity into CapybaraDEXâs pools, make sure you read this and fully understand how the pools work.
What is Coverage Ratio?
Historically, all DeFi projectsâ pools require you to deposit at least two tokens in pairs to provide liquidity and earn from pools. Wombat believes this is too complicated. Users should be able to deposit just the single token they wish and earn from pools, just like in traditional finance. Because of this belief, the Coverage Ratio algorithm was invented by Wombat and has transacted over 4 billion in swaps since its birth.
Capybara is the first project outside of Wombat allowed by Wombat to legally use this Coverage Ratio algorithm.
While you can earn from depositing tokens into CapybaraDEX pools, risks are also involved if the token price fluctuates. Letâs use some samples to explain this so users can understand and maximize their gains.
When will you make money?
If a poolâs Coverage Ratio is less than 100% or more than 100%, and you deposit money into that liquidity pool, you will get a Deposit Gain. The further the Coverage Ratio is from 100%, the more your Deposit Gain is (see table below).
Pegged/Stable Asset Pool
| Coverage Ratio | Deposit gain | Withdrawal fee |
|---|---|---|
10% | +13.49% | -13.49% |
20% | +3.05% | -3.05% |
30% | +1.06% | -1.06% |
40% | +0.44% | -0.44% |
50% | +0.20% | -0.20% |
60% | +0.09% | -0.09% |
70% | +0.04% | -0.04% |
80% | +0.01% | -0.01% |
90% | +0.00% | -0.00% |
100% | +0.00% | -0.00% |
110% | +0.00% | -0.00% |
120% | +0.01% | -0.01% |
130% | +0.01% | -0.01% |
140% | +0.02% | -0.02% |
150% | +0.02% | -0.02% |
160% | +0.03% | -0.03% |
170% | +0.03% | -0.03% |
180% | +0.04% | -0.04% |
190% | +0.04% | -0.04% |
200% | +0.05% | -0.05% |
Main/Volatile/Stargate Pool
| Coverage Ratio | Deposit Gain | Withdrawal Fee |
|---|---|---|
10% | 73.63% | -73.63% |
20% | 45.71% | -45.71% |
30% | 25.79% | -25.79% |
40% | 13.84% | -13.84% |
50% | 7.14% | -7.14% |
60% | 3.48% | -3.48% |
70% | 1.53% | -1.53% |
80% | 0.54% | -0.54% |
90% | 0.11% | -0.11% |
100% | 0.00% | -0.00% |
110% | 0.08% | -0.08% |
120% | 0.26% | -0.26% |
130% | 0.50% | -0.50% |
140% | 0.78% | -0.78% |
150% | 1.06% | -1.06% |
160% | 1.35% | -1.35% |
170% | 1.64% | -1.64% |
180% | 1.92% | -1.92% |
190% | 2.18% | -2.18% |
200% | 2.44% | -2.44% |
LST Pool
The coverage ratio for LST Pool will be update soon as the calculation complexity is high.
When will you lose money?
If a poolâs Coverage Ratio is less than 100% or more than 100%, and you withdraw tokens from that liquidity pool, you will be charged a Withdrawal Fee. The further the Coverage Ratio is from 100%, the more your Deposit Gain is (see table below).
Hence, you will earn money if you withdraw at a Coverage Ratio closer to 100% than when you deposited. On the other hand, if you withdraw at a Coverage Ratio further away from 100% than when you deposited, you will lose money.
*Note that Withdrawal Fees, when compared to traditional DeFiâs impermanent loss
For example:
| Coverage Ratio | Money earned |
When I deposit | 0.5 | +7.14% |
When I withdraw | 0.9 | -0.11% |
| Net gain: | +7.03% |
For example:
| Coverage Ratio | Money earned |
When I deposit | 0.9 | +0.11% |
When I withdraw | 0.5 | -7.14% |
| Net gain: | -7.03% |
Swapping Price
A higher than 100% Coverage Ratio means the pool has more of that token (USDT in this example), which leads to a lower price of that token (USDT, for example).
For example:
If a user swaps 1000 USDC (Coverage Ratio: 91%) for USDT (Coverage Ratio: 109%), the swap will result in 1,000.08 USDT. After deducting the 0.4 USDT platform fee taken by CapybaraDEX, the user will receive a net amount of 999.68 USDT. This swap presents a positive outcome and offers users an opportunity to gain.
Another example:
If a user swaps 1000 USDT (Coverage Ratio: 109%) for USDC (Coverage Ratio: 91%), the user will receive 999.5 USDC (This amount is the net amount and does not include the 0.39 USDC platform fee).
As evident from the example above, the system incentivizes trades from pools with lower Coverage Ratios to those with higher Coverage Ratios. This incentivization helps bring the system closer to an equilibrium state and provides arbitrage opportunities for users to benefit from these incentives.
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