Liquidity Providers

Who are Liquidity Providers? LPs (Liquidity Providers) play a key role in DeFi. They provide the liquidity which is used as collateral in a plethora of different protocols utilizing smart contracts, eliminating the need for a trusted third party, and making DeFi a more transparent, inclusive, and efficient way of interacting with money.

A Dirac Finance Liquidity Provider is an individual user, dApp, DAO, or any entity that provides liquidity to one of our vaults, by connecting their wallet to our dApp.

Liquidity Provider's goal is to generate returns from our vaults.

At Dirac Finance, LPs will be depositing USDC to collateralize options sold to contracted Market Makers. This will allow for the generation of Yield, in the form of premiums.

Liquidity Provider's Journey:

Each LP can deposit USDC in order to collateralize the options sold by the vaults.

Each time an option is sold, LPs collateralize it and receive part of the premium pro rata to their liquidity share. The collateral is locked in a dedicated smart contract until the option expires.

At maturity:

• If the option expires out-of-the-money, the collateral is unlocked and used to collateralize new options to generate additional yield for LPs.

• If the option expires in-the-money (meaning for a put that the price of wETH or wBTC is below the strike price), the collateral is sent to the market maker, who sends back to the vault the corresponding wETH. At this moment, the P&L of LPs is negative. And here is our main innovation: Instead of writing the loss, we send these wETH into a recovery process, which allows LPs to maximize their gains.

Note: LPs can withdraw liquidity that is not involved in smart contracts at any time.