LP tokens
Last updated
Last updated
Markets that are set up in the "fund structure" have a liquidity pool. This pool invests in all the senior tranches of the deals going live in that market. Liquidity providers thus diversify their exposure by investing in the liquidity pool. To keep track of the liquidity provider's positions, an LP token is used. The LP token is a market-specific, fungible, non-transferable token with an underlying value as determined by the NAV (net asset value) of the liquidity pool:
When setting up a new market, a unique LP token is created. This constraint is needed to distinguish investments made in different liquidity pools of different markets.
The LP token belongs to the family of fungible tokens, meaning that two liquidity providers who invest in the same market will have the same type of LP token in their wallet.
Due to regulations, the LP tokens cannot be made transferable as a KYB'd/whitelisted investor could transfer its LP tokens to a non-trusted investor. Therefore, the LP tokens are made non-transferable. This not only makes Credix comply with regulations but also stops hackers from transferring tokens from your wallet in case of a wallet exploit. We are working on an OTC desk and secondary market to make transfers between trusted stakeholders possible.
The LP token has an underlying price, determined by the NAV of the pool. This NAV is determined by the senior credit outstanding, reserve capital in the liquidity pool, and the number of LP tokens in existence. Let's say you invest 1M USDC, when the LP token price is 1.06, you will receive 943396 LP tokens (1M / 1.06). As time goes by and interest repayments come in, the LP token price will go up. Assume the price to be 1.10 when you want to redeem your LP tokens, you will be able to withdraw 1037735 USDC (943396 * 1.1).
