Liquidity Mining (eUTxO)

Liquidity Mining Protocol (also referred to as Yield Farming Protocol) allows anyone to set up his liquidity mining (LM) program targeted at the desired pool on Spectrum Finance.

Liquidity Mining Pool

Liquidity Mining (LM) Pool is represented on-chain as a UTxO with the following structure:

Datum (LM configuration)

Field	Type	Description
epochLen	Int	Length of one epoch in blocks
epochNum	Int	Number of epochs in the LM program
programStart	Int	Block the program starts at
redeemLimitDelta	Int	Number of blocks after the program to redeem without restrictions
programBudget	Long	Total LM program budget
maxRoundingError	Long	Total allowable residual from rounding
execBudget	Long	Total execution budget
epoch	Int	Index of the epoch being compounded

Notes:

• maxRoundingError can be estimated as epochNum . Since the exact number of participants is difficult to predict in advance, It is convenient to choose a larger value, but it should be << programBudget / epochNum . If the maxRoundingError value is too small, the LM program may break, and if the value is too large, the * *distribution of rewards may be incorrect**!
• execBudget is not necessary for Self-Hosted LM Pool
• epoch indexing starts from 1

Tokens

Name	Description
Pool ID	An NFT to identify the pool
Reward token	Budget of the LM program
LQ token	Locked LQ tokens
vLQ token	Tokens representing locked share of LQ
Temporal Token	Left program epochs times liquidity
Bundle Key Token	Token that is used to identify the ownership of the Staking bundle

Staking bundle

The staking bundle holds vLQ and Temporal tokens (Tmp). Staking bundle script guarantees to bundle of tokens and controls Compounding and Redeem operations (see "User scenarios" below).

Tokens

Name	Description
vLQ	Virtual LQ token. Represents certain amount of liquidity
TMP	Temporal token
BundleKeyToken	Token to identify the ownership

User Scenarios

Farm Creator

Create a Self-Hosted LM Pool

Bob works on a project X with a token Xt. He would like to incentivize holders of Xt to keep their tokens in ADA/Xt pools. To do that, Bob sets parameters epochLen and epochNum and sends L tokens Xt to the LM script address. Bob should configure his own Ergo-node and off-chain bots to perform transactions.

Create Delegated LM Pool

Bob works on a project X with a token Xt. He would like to incentivize holders of Xt to keep their tokens in ADA/Xt pools. To do that, Bob sets parameters epochLen and epochNum sends L tokens Xt to the LM script address. In case of Delegated LM Pool he should additionally send Y ERGs to the LM script address as execBudget for executing transactions.

Notes:

• Deposited ERGs as execBudget will be spent almost completely!
• Once deposited during program initialization, tokens Xt can't be redeemed!

Increase Execution Budget

When created, the budget will be spent linearly. However, the exact number of ERGs needed depends on the number of program participants. Creator will have to monitor ERGs balance and perform additional deposits.

General LM Pool Initialization Rules

When initializing an LM Pool (Self-Hosted or Delegated), the following actions must be performed:

1. Correct config:
   1. epochNum <= maxRoundingError << programBudget / epochNum
   2. programBudget stored in R5 of the LM Pool Box == (Total LM program budget - 1L)
2. Initial transaction with correct tokens' amounts, the creator of the LM Pool should also Deposit some LQ tokens and not Redeem received Staking Bundle until the LM program end.:

Name	Amount
X	programBudget
LQ	initialDeposit
vLQ	0x7fffffffffffffffL - initialDeposit
TMP	0x7fffffffffffffffL - initialDeposit * epochNum

Notes:

• Without the initialDeposit the LM program will break, no one will be able to take part in it, and the creator will lose his programBudget. Amount of the initialDeposit should be tiny, it should not be redeemed either during or after the end of the program!

Farm Participant

Deposit

Alice wants to participate in LM program X. To do that, she sends LQa ADA/Xt LQ tokens to LM script address and receives bundled (see "Staking bundle" section above) vLQa vLQ tokens + TMPa temporal tokens in return, where vLQa - amount of LQ tokens deposited, LQa = vLQa, TMPa = NumEpochsDelegated * vLQa. She also gets a BundleKeyToken token (BundleKeyId, C), which will be needed for "Staking bundle" redemption.

Notes:

• If the user wants to add more LQ tokens, a new "Staking bundle" will be released
• New "Staking bundle" can't be released until all previous epochs are compounded
• Amount of received Bundle Key Tokens C is 0x7fffffffffffffffL - 1L

Reward

After each epoch rewards, allocated for each epoch, are fully distributed among stakers. Each staker automatically receives a reward of EpochReward * StakerLQ / LockedLQ tokens Xt on his wallet for each passed epoch. TMPa - vLQa * NumEpochsBurned epoch token is withdrawn from Alice's staking bundle box each time compounding happens.

Redeem

Once Alice decided to unstake her liquidity she returns her staking bundle to LM Pool and receives proportional amount of LQ tokens to the amount of vLQ returned. Redemption is only allowed when all previous epochs of program are compounded.

Notes:

• LQ tokens can't be redeemed until all previous epochs are compounded or until redeemLimitDelta is reached after the end of the program