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Long-Term LP & Arken Options
Maximize Market Efficiency and Ease Impermanent Loss with Arken Options
Although the conventional AMM model has proven to be effective, it comes with certain inefficiencies such as capital efficiency, price slippage, and the impact of impermanent loss.
Placing liquidity in AMMs can be daunting for liquidity providers due to the risk of impermanent loss, which occurs when the token price moves beyond a certain point, causing LPs to lose value compared to holding the tokens. In a highly volatile market, LPs are often at the mercy of market movements, making it challenging to manage risk and determine optimal liquidity provisioning strategies.
Arken has identified such inefficiencies that could be addressed with a new model to provide a more streamlined user experience without compromising on its simplicity, and to incentivize those who contribute to the platform's growth. To address this, we have introduced Arken Options, with a goal of improving capital efficiency, reducing price slippage and minimizing the impact of impermanent loss to provide traders with a more efficient and seamless trading experience.
Arken Options, a novel concept from the Arken team, is a tradable NFT that functions as a Call Option. For those who are unfamiliar with the term “Call Option”, A call option is a contract that gives the holder the right, but not the obligation, to buy an underlying asset at a specified price, known as the strike price, on or before a specified date, known as the expiration date.
The exercise price of Arken Options is set at a multiple of the Arken price at the time of creation, with the exercise window for Arken Options typically opens 1-4 years after the creation date. Once the exercise window is open, Arken Options holders can opt to exercise the option at desired price and receive Arken tokens until the exercise window closes.
We believe that instead of giving away a large number of tokens that may eventually be sold and drive the price down, offering Arken Options as the primary incentive mechanism will foster a sustainable ecosystem and help our platform to grow to offer even more value.
The benefit of Arken Options over the usual farming reward are:
- Stabilize Token Price: Arken Options will be created for each user at different dates — depending on the user’s participation with Arken, creating a spread of exercisable windows of Arken Options in the distant future. If people exercise Options and sell a large enough amount of tokens and bring the price down to below the exercise price, Arken can still buy back the token cheaper than the giveaway.
- Limit Rapid Dump: Traders and liquidity providers can use options to hedge against potential price movements If the Arken token price is not rising above the Arken Options, it’s likely that holders will not exercise the option.
- Reduce Price Impact: Since Arken Options are tradable, the user who receives the token can trade it even before the exercise window arrives. Selling Arken Options will not impact the price of the Arken token on DEX; rather, the token price on DEX will influence the market price of Arken Options.
- Ease Impermanent Loss: With Arken Options to help stabilize and reduce the volatility of token price, this mechanic helps combat Impermanent Loss when the prices of assets in the pool diverge from their initial prices, offering LPs alternative mechanism for managing risk and exercising choice that fits their strategies.
Additionally, Arken Options will serve as one of our incentive mechanisms and will be incorporated into our upcoming products along with Arken Token. Stay tuned for our future product launches and learn more about how Arken Options can be utilized within our ecosystem.
Given the standard Uniswap V2 curve formula
The liquidity of the pool is defined by the square root of k
Arken Option, O, is calculated by the increase in liquidity multiplied by the option coefficient, λ
Here is the coefficients for each long-term LP campaigns
λ = 12,649,110.640674
λ = 7,905,694.150421
Calculation for Campaign#1 ARKEN3X
Current ARKEN in pool: 25,000,000
Current USDC in pool: 100,000
Pool’s current price: 0.004
Current Liquidity: sqrt(25,000,000 x 100,000) = 1,581,138,830,084,190,000
Input USDC: 100
Input ARKEN: 25000
New Liquidity: sqrt(25,025,000 x 100,100) = 1,596,950,218,385,030,000
ΔL = 1,596,950,218,385,030,000 - 1,581,138,830,084,190,000
O = 12,649,110.640674 x (1,596,950,218,385,030,000 - 1,581,138,830,084,190,000)
O = 20,000 ARKEN
Option rate = (Arken Options received / Arken Provided) x 100
Option rate = (20,000 / 25,000) x 100 = 80%
Use case: What can happen when you receive an Arken Options? Let’s get to a quick example here:
- Suppose User A is given an Arken Options containing 100 $ARKEN with an exercise price of 1 USDC and an exercise window beginning on 10th April 2024.
- On 10th April 2024, if the $ARKEN price is 1.2 USDC, User A can exercise the Options by paying 100 USDC, receiving 100 $ARKEN, and selling it for 120 USDC.
- However, if the $ARKEN price is lower than the exercise price, User A can hold onto the Options until the price rises.
We’ve designed Arken Options mechanics to ultimately support and offer real yield to users who use the Arken Platform. The more people use Arken, the more revenue the platform collects which is then used to buy back more tokens, thereby increasing the token price.
If the token price reaches a milestone, more Arken Options can be exercised. This cycle will continuously drive the sustainable growth of our platform and give Arken time to grow steadily to live up to expectations.