Liquidity Provider FAQs
If you have questions related to trading, then please see Trader FAQs. If your question is not covered, please ask on Discord in #🤔│questions-and-feedback.
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) and with low slippage (thanks to the capital efficiency of Orca's CLAMM pools). Additionally, you can provide liquidity to Orca's concentrated liquidity (CLAMM) pools to earn trading fees and token emissions.
The ORCA governance token was launched on 9th August 2021. See the Tokenomics page for more details. For details of the governance process please see Governance.
To connect to Orca you will need a compatible wallet, a list of currently supported wallets can be found here. Orca plans to integrate other wallets that support Solana program execution, as they are released.
Orca is a relatively new application on a fairly 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 this Orca's concentrated liquidity product is double audited. Nevertheless, Orca strongly encourages taking the time to understand the risks before trading.
- 2.Divergence loss (impermanent loss): As token prices diverge from their deposit values, liquidity value falls in comparison to holding the same tokens in a wallet. Through volatility, deposited liquidity can be worth less at withdraw than at deposit: price action can cause liquidity providers to lose money. For more information, this blog post from the Uniswap team is a great primer. The risk of divergence loss is amplified in concentrated liquidity pools.Divergence loss as a metric, is a comparison of value versus simple holding. Loss in value due to changes in underlying asset value is not divergence loss.
- 3.Wallet providers: Orca is compatible with a wide range of wallets (see compatible wallets). A wallet exploit could affect users.Orca cannot and does not endorse nor guarantee the security of compatible wallets. Podmates should exercise caution and do their own research before interacting with or depositing to any wallet.
SOL is required to pay network fees. It is recommended to maintain a balance of at least 0.05 SOL. Actual fees are typically far lower, but for simplicity, a small minimum balance of SOL is required to transact.
Orca's uses concentrated liquidity pools, similar to (but not identical to) Uniswap v3. Each liquidity provider chooses a range within which to provide liquidity: trades are executed using the combined liquidity of all individual in-range curves.
Orca will add tokens to the Orca Token List based on information provided by the project and demonstrable 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. Anyone can create a pool.
Some tokens on Orca are wrapped, including forms of BTC, ETH, AVAX, LUNA, Celo, and FTM. There are several source protocols for wrapped tokens, please ensure to Do Your Own Research.
Whether you provide liquidity is entirely up to you. Users typically provide liquidity to Orca’s pools to earn trading fees. Example: you provide liquidity to a SOL/USDC pool and receive a pool position NFT in return, this acts like a receipt for your deposited tokens and is needed to withdraw.
Each time a trade routes through your selected SOL/USDC pool, a fee is paid by the trader (the taker), a part of which is shared amongst the liquidity providers (the makers), see Trading fees for details. These fees can be harvested at any time.
When you provide liquidity in a pool you earn a maker fee from each trade executed against your liquidity, some pools also attract rewards. All earned yields are harvestable at any time.
Several formulae are used to calculate the APRs visible in the pool explorer and your portfolio. This document, provides details of the calculations and assumptions involved. Displayed APRs are illustrative only, and past activity is never a guarantee of future returns.
Yes, the Orca protocol allows you to withdraw liquidity at any time.
Trading fees and emission yields accrue continuously and can can be harvested any time with no lock-up. Orca does not offer single-sided staking.
In Orca's concentrated liquidity pools liquidity providers compete for trading fees and token emissions, which are distributed according to the parameters of their positions. The effects of leverage, means that tighter positions receive higher yields than wide positions. However, a tight range is also more vulnerable to Divergence Loss (also known as Impermanent Loss or IL) and more likely to fall out-of-range. Out-of-range positions do not earn.
In traditional constant product pools, liquidity provider tokens (LP tokens) represent ownership of liquidity. As these pools have a fixed range and no multiplier, all LP tokens are the same, and therefore fungible. In Orca's concentrated liquidity pools, liquidity provider set the parameters of their position. As each position is unique each LP token must also be unique, and therefore non-fungible. Positions in Orca's pools are represented by an NFT (see What is a pool position NFT), these NFTs are your receipt for your liquidity, if they are burned or otherwise lost, the associated liquidity cannot be withdrawn.
The pool position NFT is an LP token that represents a position in a pool. If it is burned or otherwise lost, the associated liquidity cannot be withdrawn. It is technically possible to trade a pool position NFT on secondary markets. However, if sold any associated liquidity is also sold and will no longer be held by the original owner.
When closing a position and withdrawing liquidity, you can choose NOT to burn the NFT and keep it in your wallet: the NFT will no longer represent any liquidity, but the parameters will be retained (with no balance) in your portfolio, and can be deposited to in the future.
In traditional constant product pools liquidity is provided across the entire price range (from 0 – ∞). In Orca's concentrated liquidity pools, users choose the min and max price for their liquidity. It is worth noting the limits are not arbitrary: users must choose between a set of evenly distributed discrete ticks. Some pools offer full range deposits as an option - you can find an up-to-date list here.
Orca offers several range options, price history is taken from CoinGecko and the following criteria is applied.
- Active: higher yields and divergence loss, may require more frequent management. The min and max limits are derived from the 24-hour low and high prices divided or multiplied by 1.1 respectively. Where no price history exists the min and max limits are derived from the current price divide or multiplied by 1.25 respectively.
- Passive: lower yields and divergence loss, may require less frequent management. The min and max limits are derived from the 30-day low and high prices divided or multiplied by 1.2 respectively. Where no price history exists the min and max limits are derived from the current price divide or multiplied by 1.5 respectively.
- Custom ranges: select your own parameters based on personal knowledge and requirements, such as: management frequency, expected price action and volatility, and risk-appetite.
- Full Range: lowest yields and risk of divergence loss, no management required, mimics constant product pools, deposits to the full range from 0 – ∞, see available pools, here.
Trading action causes a pool's current price and token balances to fluctuate continuously.
As the current price moves towards the max limit of a position, token-A is rising in value, in relative terms, against token-B and will be sold concurrently for token-B. At the max limit all of token-A will have been sold and the position will be made up entirely of token-B. The opposite occurs as the current price moves towards the min limit of a position. Once the current price has reached or passed the min or max limits the position becomes dormant, is no longer providing liquidity, and consequently will no longer earn incentives or trading fees. If the price subsequently moves within the position's range, liquidity, incentives and trading fees will recommence.
If your position is out-of-range, you can either wait for it to return to the price range (if expected) or provide liquidity in a new range.
Should you wish to set a new range, you will need to withdraw your liquidity and rebalance. Since the tokens withdrawn and deposited will not match the deposit ratio of an in-range position it will be necessary to trade in order to match the deposit ratio of the new range, you can do this using the Match deposit ratio toggle in the deposit modal.
No. The exposure to divergence loss increases relative to the leverage of the selected range.
However, concentrated liquidity, pools allow users to deposit less liquidity and get the same or higher yields, due to the multiplier effect of leverage.
The deposit ratio is dependent on the selected price range and its relationship to the current price: the closer the current price is, to either of the min or max limits than it is to the other, the less balanced the deposit ratio will be.
In this formula Pu is the max price, and Pl is the min price for the elected price range.
Beside the obvious advantages of Solana's low transaction fees and fast transactions, Orca's pools have:
- a simpler, more guided UX for concentrated liquidity provision;
- a double audited, custom built, and open sourced smart contract designed for the Solana virtual machine;
- built-in yield farming—a first for any concentrated liquidity AM.
Where emission based rewards apply, a fixed number of tokens are distributed every second based on the weekly emission rate. These rewards are shared proportionally between liquidity providers based on the share of in-range liquidity held in that pool.
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.
When creating a pool users can chose a fee rate, which will determine the taker fee paid by traders. How this fee is divided can be seen here.
First decide if PnL will be tracked in terms of the deposited tokens, or relative to a currency such as USD. Make a note of the values of the tokens during your initial deposit (if you did not do this, these can be retrieved from 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 - Value of Deposits
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.