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Liquidity Pool

Learn the basic mechanism of liquidity provisioning on Buffer
The Buffer liquidity pools (BLP) provide market-making liquidity for exotic options trading.
It works by locking up a certain amount of liquidity at the time of option buying, which is then used to pay out profits for in-the-money (ITM) options at the time of expiry.
To compensate the depositors of the BLP vault for providing market-making liquidity, Buffer allocates the majority of the protocol fees to these users along with other benefits (more details here).
When an option is bought, the settlement fee (15%) charged is sent to the pool, and the pool locks up the corresponding liquidity.
  • When traders win (positive PnL), their winnings are received from the vault.
  • When traders lose (negative PnL), their losses are sent to the vault.
In exchange, the vault receives a portion of trading fees. These fees are proportionally split among Liquidity providers and BFR stakers incentivizing stakers to stay in the vault.
Multiple pools are available for trading depending on the selected markets. Trades can be placed in a non-custodial manner, allowing traders to remain in the custody of their assets even a trade is open.

Currently, trades can be executed against three different pools:

BLP - User-Provided Vaults

Collateralization of the vault depends on trader PnL. If the locked liquidity is greater than the premium received, which helps to ensure that the pool has enough liquidity to cover potential reward payouts for ITM options. The profit earned by the pool is distributed among the liquidity providers in proportion to the liquidity they have added.
BLP is network and asset specific.

Benefits for Liquidity Providers

On Arbitrum:
  • USDC-based BLP (uBLP): earns 55% of platform fees distributed in USDC
  • ARB-based BLP (aBLP): earns 70% of the platform fees distributed in ARB (via monthly airdrops)

BFR - POL Vault (only live on the Buffer Classic App)

The POL-based BFR pool seeded by the Buffer treasury, follows the same mechanics as BLP - traders' profits are sourced from the pool, while their losses are directed to it.
In accordance with BIP-02, 50% of the fees received by the pool are burned, and the remaining 50% will be routed to the treasury to be utilized for Loyalty Program v2.5 and other incentives.
Inflows/outflows will be subject to governance once the Buffer DAO is implemented.
Note v2.5.1 does not support trading using $BFR as collateral. We are working on adding support for more collateral types. Traders keen on using $BFR as trading asset can do so on the Buffer Classic App.