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The + in Liquidity Pools: Why Liquidity Pairs with USD+ are more Capital Efficient

The Problem at hand

Liquidity pools are at the very essence of DeFi. They facilitate swaps on Decentralised Exchanges (DEXes) and facilitate trades in a decentralized and tamper-resistant manner. However, liquidity pools, as they currently sit, are inefficient and lack capital efficiency.

The + that Liquidity Pools Need

Overnight’s stablecoin, USD+ is a yield-bearing asset generating rewards for its holders on a daily horizon via a rebase mechanism. These rewards are financed via Overnight’s carefully selected Yield-Farming strategies. Liquidity Pairs with USD+ have an advantage over other stablecoins like USDC owing to the APY generated via its Yields.

Performance in Liquidity Pools

Having Liquidity Pairs relative to an appreciating token means that all of the underlying assets supplied witness appreciation. A Liquidity Pool with USDC & USD+ respectively (50/50) would appreciate both of the supplied assets to the % of APY offered by USD+. For example, assuming 10% APY and the supplied assets having a value of $50 each would appreciate both of the assets to $55 each (a net appreciation of $10). For more information on this, visit this guide.

For Protocols: How does having an LP relative to USD+ benefit their native token

Since the Liquidity Pair is relative to an appreciating token, both of the underlying assets in the said pool appreciate. This generates a “net-buy” pressure for the protocol’s native tokens owing to the constant positive rebases from USD+.

Click here to view more on how Sphere Finance could achieve forced appreciation via having its native token paired with USD+ in Liquidity Pools

For Liquidity Providers: Generating increased profitability via Yield-Farming

Liquidity Providers are constantly on the search for increased Yields. USD+ facilitates this and hence is more attractive for Yield-Farmers. They can now earn:

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