Liquidity Provider FAQs
Orca is the easiest place to trade cryptocurrency on the Solana blockchain. On Orca, you can trade tokens cheaply, quickly, and confidently (thanks to the Fair Price Indicator). Additionally, you can provide liquidity to a liquidity pools, including concentrated liquidity pools (Whirlpools) to earn trading fees and token emissions.
To connect to Orca you will need a compatible wallet, Orca currently supports:
We plan to integrate other wallets that support Solana program execution, as they are released.
You can use Orca on the phone with Phantom, Solflare, Coin98, SafePal, Bitkeep, Math Wallet or Slope.
Orca is a new application on a relatively new blockchain. There are a number of risks to using Orca:
1. Smart contract vulnerabilities: The Solana mainnet is still in beta, and there is always the possibility of an exploit in the smart contract. To mitigate these risks, Orca's smart contract uses the Solana Foundation's token-swap program, which has been audited by crypto security firm Kudelski. It is also very similar in structure to well-understood AMMs on Ethereum, such as Uniswap. Nonetheless, Orca strongly encourages taking the time to understand the risks before trading.
2. Divergence loss (impermanent loss): As token prices diverge from their prices at deposit, your liquidity becomes lower in value when compared to its value if tokens were held outside the pool. Depending on volatility, your liquidity stake may become lower than your deposit when you withdraw. Large price swings could cause liquidity providers to lose money. For more information, this blog post from the Uniswap team is a great primer on impermanent loss. The risk of divergence loss is amplified in Whirlpools. Note: Divergence loss is always a comparison of value versus simple holding. Loss in value due to simple changes in asset values is not divergence loss.
SOL is required to pay network fees. The actual fees are lower than the minimum amount, but for simplicity, a small minimum balance of SOL is required to transact on Orca.
Our Whirlpools are concentrated liquidity pools, similar to Uniswap v3. Each liquidity provider chooses the range within which they want to provide liquidity and trades are executed using the combined liquidity of all individual curves currently in range.
Orca will list tokens based on information provided by the project and demonstrated community demand (e.g., volume or interest). Orca is a decentralized protocol that facilitates trades and and will aim to support every asset that is tradable on Solana.
Users typically provide liquidity to Orca’s pools to earn trading fees. Example: you provide liquidity to the SOL/USDC Pool and receive liquidity tokens (LP tokens) in return, these act like a receipt for your deposited tokens.
Each time a trade routes through the SOL/USDC pool, 0.3% of the trade value is added to the pool. Over time these fees accumulate increasing the Pool's value relative to the value of its original deposits.
When you redeem your liquidity tokens, you will receive the share of the SOL/USDC Pool that you LP tokens represent, this will include your share of any accumulated fees. (Note: due to divergence loss, you are not guaranteed a positive return).
NOTE: in Whirlpools fees are not added to the pool and can be harvested at any time.
Trading fees are automatically added to Pools after each trade. These fees increase the amount of tokens that you get back when you withdraw liquidity. While you cannot harvest trading fees, without withdrawing at least some liquidity, you can harvest ORCA rewards from Aquafarms and other tokens from eligible Double-Dip pools at any time. All earned yields are harvestable from Whirlpools at any time.
For now, manual tracking is recommended. To do this, record how many of each token you've deposited, along with how many tokens you're able to currently withdraw, then use the following formula:
Liquidity tokens (also called LP Tokens) represent a share of a liquidity pool. For instance, if you contribute to the SOL/USDC pool, you will receive SOL/USDC liquidity tokens. If you have deposited liquidity, you will be able to see liquidity tokens in your wallet.
Given a pool with: pool token supply, token A, and token B: the following formula is used to calculate the ratio: (token A * token B)^(1/2) / (pool token supply). This ratio increases when trading occurs in the pool, regardless of how the pool size changes. This value is sampled every 10 minutes and the data is used to calculate the ratio growth over time. This allows an APY to be projected for any sampled time period.
Yes, Orca allows you to redeem liquidity tokens for your share of tokens at any time.
The deposits and withdraws for stable pools are often imbalanced, but this is intended behavior.
Stable pools are designed to maintain a relatively stable price despite large imbalances in the pool. For example, the mSOL/SOL pool may contain far more mSOL than SOL, but the price ratio will remain close to even (e.g. 1 mSOL for 1 SOL). However, this means that liquidity providers will deposit and withdraw more mSOL than SOL, since the amount they provide must be proportional to the amount of tokens currently in the pool.
This is in contrast to Constant Product pools where changes in the balance of the pool directly affect the price of the tokens. Since the balance of the pool is proportional to the price of the tokens, liquidity providers can generally expect the value deposited or withdrawn to be the same for each token.
Aquafarm LPs earn both trading fees and ORCA emissions. You will see ORCA rewards accrue continuously and can harvest any time with no lock-ups. Trading fees accrue directly to your LP tokens and are available when you withdraw. Double-Dip Pools are a special kind of Aquafarm that allow LP holders to earn additional tokens, please see How to Use Double-Dip Pools.
Update: For a limited time between 28th September and 12th October 2021, ORCA holders were able to stake their ORCA in single-sided pools and earn a share of 65k ORCA in total rewards. Over 2m ORCA were staked by ORCA holders, earning roughly 72% APR.
Unlike standard pools, liquidity providers in Whirlpools will compete for trading fees and token emissions, which are divided among liquidity providers according to the parameters of their deposits. Due to the structure of Concentrated Liquidity and Leverage, users who set a tighter price range, around the current token price will receive a higher share of fees and incentives. They are, on the other hand, more vulnerable to Divergence Loss (also known as Impermanent Loss or IL).
In a standard AMM pool, Liquidity provider (LP) tokens represent how much of the total liquidity of a pool is owned.
As users deposit liquidity, their original tokens go into the pool and they mint LP tokens in an equivalent amount, increasing both the liquidity in the pool and the total supply of LP tokens. As users withdraw liquidity, they burn their LP tokens and receive their original tokens back according to the balance of the pool (which may go up or down depending on the relative price of tokens), decreasing both the liquidity in the pool and the total supply of LP tokens.
As standard pool liquidity pools have the same zero-to-infinite range and no multiplier, all LP tokens are the same, which makes them fungible. In Whirlpools, each liquidity provider decides the range and amount of liquidity deposited into the pool, making each LP token unique, and therefore non-fungible.
The Whirlpools NFT is an LP token that represents a given position in Whirlpools. It is technically possible to trade the Whirlpools NFT on a secondary marketplace. However, you should be aware that by selling it, you are also selling your liquidity and will not be able to retrieve your tokens.
When closing your position and withdrawing all liquidity, you can choose NOT to burn your NFT and keep it in your wallet. At this point, the NFT no longer represents any liquidity.
In traditional pools liquidity providers provide liquidity across the entire possible price range, from zero to infinity. When participating in a Whirlpool, each user chooses the upper and lower limit for their liquidity. It is worth noting the limits are not arbitrary: users must choose between a set of evenly distributed discrete ticks.
Preset price ranges are currently based on the 30-day minimum and maximum prices for each pool’s token pair. For conservative range, the lower end of the price range is the minimum divided by 2.5, and the upper price is the maximum, multiplied by 2.5. For the standard range, the lower price is the minimum divided by 1.75, and the upper price is the maximum, multiplied by 1.75. Orca plans on continuing to iterate on how the preset price range is calculated based on user feedback.
Custom ranges may be created according to the user’s personal preferences, depending on a variety of factors: frequency in which they wish to check their position, confidence in price movement, expected token volatility, and preferred exposure to risk. The more often the user is willing to manage their portfolio, the tighter they can make the range, as they can adapt to price movements and reposition as they happen.
As users trade tokens against a given pool, the price of the token pair in the pool and the balance of tokens in the pool will change continuously.
This applies to Whirlpools positions, but only when the price is within the set range. If the price of token A moves above the established limit, all of the A tokens will have been sold for token B. If the price of token A moves below the established limit, all of the B tokens will have been sold for token A. When that happens, users are no longer providing liquidity in the pool, and so they will receive no incentives or trading fees. Once the price goes back within the range, liquidity, incentives and trading fees are re-established.
Should they wish to reset their range, they will need to rebalance. This is done by pulling liquidity and redepositing within a new range. Since the tokens withdrawn and deposited may not be in a 50/50 ratio, it may be necessary to perform a trade in order to redeposit in the newly selected price range.
No. Whirlpools increase Divergence Loss according to the position’s Leverage. The tighter the range, the greater the Leverage and the Divergence Loss.
However, Whirlpools allow users to deposit less liquidity and get the same or higher yield due to the multiplier. Choosing a level of leverage, however, up to each individual’s discretion.
The deposit ratio for a Whirlpools position depends on the price range set for that position. The larger the difference between the (lower bound and current price) and (upper bound and current price), the more imbalanced the deposit ratio will be.
In this formula, Pu is the upper price, and Pl is the lower price of the price range.
Besides the obvious advantages for users of lower transaction fees and quick transactions for Solana users, Whirlpools have:
- A simpler, more guided UX for concentrated liquidity provision
- An entirely custom smart contract designed for the Solana virtual machine, which will be open sourced along with the public release (and after audits are completed)
- Built-in yield farming — a first for any concentrated liquidity AM
Fear not—the Orca trade experience you know and love is not going away! As a trader, there is nothing you need to do to take advantage of the deeper liquidity provided by Whirlpools; all the magic happens behind the scenes.
Standard pools and Double Dip pools will continue to exist for the time being, but incentives such as emissions will gradually migrate to Whirlpools. Eventually, standard pools may be deprecated, but there are no concrete plans.
Rewards will continue to be determined for each pool and Whirlpool individually and change with each Aquafarm Rotation.
A fixed amount of rewards is distributed for each Whirlpool every second according to the weekly distribution rate for that pool. Those rewards are earned by liquidity providers in a ratio directly proportional to the amount of liquidity they have in the current tick.
For example, if 1% of the liquidity in the current tick was deposited by you, you will earn 1% of the rewards distributed every second.
trades will be routed to whichever pool provides the best rates. Ultimately, Orca expects the deeper liquidity provided by concentrated liquidity to mean that most fees are earned by LPs in Whirlpools.
When creating a Whirlpool users can chose a fee rate. This fee is divided, with 97% going to liquidity providers and 3% to the Climate Fund.
The first tip is to decide whether you’d like to track PnL (profit & loss) in terms of the tokens themselves, or relative to USD. Then, keep track of the values of the tokens during your initial deposit (if you did not do this, look for your deposit transaction using a blockchain explorer). You will also need to keep track of yield harvested and any further deposits.
Providing you have this data, the formula to calculate your PnL (Profit and Loss) is fairly simple:
PnL = Final Value of Position + Accumulated Fees and Rewards - Initial Value of Position
Disclaimer: The content of this communication is not financial advice and should not be relied on by any persons as financial advice. This communication has not been provided in consideration of any recipient’s financial needs. Orca has not conducted any financial assessment based on the personal circumstances of any recipients. Before using the protocol, carefully review all relevant documentation and consider risks including total loss of funds.