Why the LP return of TripleFi is expected to be high?
The design of TripleFi is created based on a combination of brokerage business model in traditional finance and DEFI solutions.
In traditional finance market like FX CFDs market, brokers always have extremely good returns. Here are some insight of FX brokers from East Asian market,
1. For prime brokers, there are 3 parts of income including trading fees, spread and gains from counter-party the role.
2. Coincidentally, the 3 parts each in general counts for about 1/3 of total income.
3. Broker bring clients to prime broker and deposit margin to prime broker to take the counter-party risk, so that brokers can take in general 60%-80% of the total income generated by the trades from their clients.
The LP of TripleFi in terms of return is comparable with the return of the brokers, but only higher. In TripleFi, LP gets 75% of the trading fee, 100% of the spread, 100% of the income as counter-party. We could assume the income proportion will be very similar to FX CFDs, then the LP gets 75%*1/3+100%*1/3+100%*1/3=91.6% of the total income, which is much higher than the 60%-80%, brokers get in FX market. And another new extra income for LP is the funding interest, which will be paid to LP especially when there is higher net position on a single side. And the LP does not have to spend marketing cost as brokers normally do. This together will result that the TripleFi LP will generate a stable and considerable return.
Even though the expected return as a counterparty is positive, LP can still hedge the net position in the swap market or in centralized exchanges even. LP can calculate their risk exposure with the total amount of net position in the trading pair and the proportion of their LP among the total LP, which are all open information on chain.
In the beginning, we might see some deviation of the return of LP pool, which might be more influenced by a smaller amount of traders. When the number of traders increase, the return of LP pool will be more stable. And the spread will also be adjusted especially in particular market situations in order to ensure a stable and attractive return of the LP.