What are Auto-Pools?
Auto-Pools is an automated liquidity manager that uses an algorithm to rebalance liquidity in a Liquidity Book Pool. LIquidity Providers can leverage the use of an Auto-Pool and remove the need to manually rebalance their own liquidity. Auto-Pools is therefore a simple and accessible way to access one-click liquidity provisioning experience on Liquidity Book.
Put simply, if you do not want to manage liquidity yourself, you can deposit your assets into an Auto-Pool and let the automation rebalance Liquidity for you.
Liquidity Book greatly enhances capital efficiency and opens up higher yield potential versus competitors, it is an empowering offering that provides Liquidity Providers with true customisation and versatility with all liquidity provisioning. However, the endeavor of managing an active position is complex, risky and requires careful management to execute with success. A key solution that removes the requirement of managing positions comes in the form of automation, via Auto-Pools.
⚠️ Risk Warning
Auto-Pools offer an automated way to access a Liquidity Book Pool. However, like all forms of providing liquidity, it's not without risks and should only be undertaken with a thorough understanding of the underlying Auto-Pool and market conditions.
Assets may experience significant divergent price movements during volatile conditions. This means your deposit is exposed to the price movements of both tokens in the pair, and your exposure to each token can also change. Volatile conditions may lead to increased impermanent/divergence loss.
Your capital is at risk. Your assets may be worth less when you withdraw them compared to when you deposited them.
How do Auto-Pools Work?
Users deposit Liquidity into an Auto-Pool. The Auto-Pool will then automatically execute the process of rebalancing the liquidity within a Liquidity Book pool. You can think of the Auto-Pool as an algorithmic Liquidity Provider. The algorithm aims to maximise fee generation and it will do that by assessing conditions within the Liquidity Pool and balancing liquidity accordingly to ensure fees are being earned. You will see a variety of shapes and distributions which are decided and executed exclusively by the algorithm.
How to Withdraw
When the user withdraws from the Auto-Pool, they receive back their proportionate share of the current asset composition, with any fees accrued. Withdrawal from an Auto-Pool is not instant, as orders to withdraw are collected and then executed on the next rebalance in the Auto-Pool. This can be anywhere between instant to 60 minutes.
Rewards and Fees
Your position will automatically be accruing fees collected by the Auto-Pool
Auto-Pool tokens can be deposited into yield farms for bonus token rewards
Automation fee applied on each rebalance and equivalent of up to an APR of 4.5%
There are no other fees or hidden fees
What exactly is the Automation Fee?
A pro-rated fee is taken on each rebalance performed by the Auto-Pool. The automation fee is an equivalent of 4.5% annualized over a year. The Automation Fee is used to cover operational costs of the Auto-Pools, this includes gas for rebalancing. The Automation Fee may at some point in the future be distributed to sJOE Stakers. The Automation Fee may also increase or decrease in the future.
Auto-Pool Yield Farm
Some Auto-Pools may come with a Yield Farm titled 'Rewards' that distribute additional token rewards on top of any yield earned from fees. These yield farms can be accessed directly in the Auto-Pool page as seen in the image below. Once you have deposited your tokens into the Auto-Pool, you can then proceed to depositing your receipt token into the yield farm. Any rewards earned in the yield farm are streamed in real time and are held waiting for you to collect them.
With current popular solutions in the field of automated liquidity management, strategies are typically executed via a smart contract. Auto-Pools however have been built differently and are instead executed by an off-chain hosted command centre. This allows for Auto-Pools and the underlying algorithms to be dynamically updated and iterated on over time to optimise the balancing process and improve performance.
Despite the inherent liquidity and contract risks associated with delegating liquidity from the Auto-Pool to the execution vehicle, automated rebalancing will be limited to eg hourly or daily. To further minimize risks, Auto-Pools may have further restrictions applied to them on the actions that can be taken for liquidity management. This would also allow for easy integration of 3rd party operators onto the platform.
It is important to highlight that Auto-Pools is not a product that offers ‘staking’ and that Auto-Pools do come with risk. Auto-Pools are not ‘Impermanent Loss’ proof and they are not an ‘investment vehicle’. Auto-Pools carry token price risk, just like any form of providing liquidity.
If you have any questions about Liquidity Shapes and how to deploy them please join the Trader Joe Discord for further assistance