Dynamic LST Pools
Last updated
Last updated
With Dynamic LST Pools, we aim to greatly enhance the options for both LST creators, liquidity providers, and users to grow liquidity and promote the adoption of liquid staking tokens on Solana.
Growing LST adoption has the potential to solve some of the major blockers in Solana DeFi. There is ~$9.5B worth of capital (383M SOL) in directly staked SOL with less than 3% in LSTs. Growing LST adoption would help unlock that capital and put it to work in Solana DeFi dramatically increasing liquidity, volume, and the number of tradable assets.
What are Dynamic LST pools and how do they work?
The price of LSTs is constantly increasing with respect to the staked token as staking rewards get distributed every epoch. This price increase leads to impermanent loss (IL) for LPs in any xSOL/SOL pool. Our Dynamic LST pools are stable and mitigate IL from this price increase by continually tracking the price of an xSOL token directly from the LST’s on-chain program. By avoiding the use of price oracles, we remove a dependency and a potential exploit vector.
For liquidity providers (LPs), this means you can deposit and withdraw at any time without having to worry about IL or whether the APY you are earning is enough to offset the IL.
Additionally, our Dynamic LST Pools utilize the stable curve AMM model in order to concentrate the liquidity to offer low-slippage trades and increase the volume capture from swap aggregators like Jupiter. LPs benefit from the increased volume with better revenue from fees. And unlike concentrated liquidity automated market makers (CLMMs), an LP does not have to constantly manage their liquidity positions.
A major problem for growing liquidity for any token is an overreliance on farming rewards. Often times it means having to utilize aggressive token emissions or maintain farming rewards over a longer period of time to maintain a certain level of liquidity. You generally see this if trading fees cannot support the liquidity depth in an AMM pool.
Our Dynamic LST Pools utilize Meteora’s Dynamic Vaults to provide a more sustainable way to grow and retain liquidity by lending out the idle capital in the pool to earn an additional yield. This allows LPs to continuously earn lending yield even when trading volume dips or farming rewards end.
What are Dynamic Vaults?
operate as a lending aggregator that allocates capital across multiple lending protocols on Solana. We utilize an off-chain keeper called which constantly monitors all lending pools every minute and rebalances allocations to optimize yields and reduce risk.
While there is risk in lending, our Dynamic Vaults by constantly monitoring lending pool utilization rates and automatically withdrawing funds whenever risk thresholds are hit. Additionally, only a maximum of 30% is ever allocated to any single protocol.
And our Dynamic Vaults have already been battle-tested with several real-life events: The USDC depeg in early March and the USDH exploit late last year. In both cases, Hermes was able to automatically detect and withdraw all funds safely.
So what does this mean for liquid staking protocols?
Our Dynamic LST Pools offer a more sustainable way to grow liquidity for your LST. You are less reliant on farming rewards to grow your liquidity and LPs are less likely to leave when your farming rewards end. Additionally, you’ll be able to support a deeper liquidity depth than your volume/fees may currently allow. This can be crucially important in the early days when you are looking to build up the trading volumes for your LST.
We’ve been working hard to support our partners Marinade Finance, Jito Labs, and SolBlaze in helping them achieve their specific goals for their LST pools and will be providing that same level of support for any project that wants to launch a Dynamic LST Pool with us.