Pools

Liquidity pools on Odyssey are an easy way to provision liquidity into the orderbook and participate in the upside of market making strategies.

Hook Protocol implements a liquidity pool system designed to provide 24/7 two-way liquidity on the orderbook for various perpetual futures markets. These vaults democratize the market-making earnings that are generally reserved for large institutions on new DeFi products. The pools are inspired by the very effective programs used by Vertex (powered by Elixir Protocol), Hyperliquid (HLP), and GMX to bootstrap initial protocol liquidity.

By participating in the Hook Liquidity Vaults, users can contribute to the liquidity provision on the protocol while earning a share of the market-making profits and other revenue streams. However, it is essential to understand and carefully manage the associated risks, including potential losses from adverse market movements and other protocol-related risks.

Overview

The liquidity pools are funded by deposits from users, as well as contributions from the Hook Protocol team. The pooled funds are then used to deploy liquidity against the protocol, facilitating market-making activities. The pools earn revenue from various sources, including market-making profits, fee revenue sharing with the protocol, and negative maker fees.

Pool Risks

The primary risk associated with the liquidity vaults is the potential for the pool to hold a losing position. The pool attempts to be market neutral over time, but definitionally traders open positions against the pool, creating directional risk. The pools aim to earn more from the trading they facilitate than potential losses from adverse market movements.

Additionally, there are secondary risks related to the protocol itself, such as oracle risk, smart contract risk, bridge risk, and centralization risk. These risks have been mitigated by audits, working with reputable providers, and active monitoring and alerting around the pool.

Lastly, although the pool is not the counterparty for all trades in the protocol, it does hold directional positions. This means the pool may lose money when there is low trading activity or when the price moves quickly in one direction. When depositing to a pool, we recommend periodically monitoring the pool's position and opening a rough “beta” hedge in the opposite direction on another venue. This exposes the depositor more purely to the short-term market making returns on the pool, instead of the combination of those returns and the longer-term price changes of the underlying asset.

Deposit Process

Users can initiate a deposit request for a specific liquidity vault targeting a particular market. The deposit amount should be specified in the base currency of that market. Currently, there is a minimum deposit size of 0.5 to prevent spam.

Review the available pools on the Pool page

Enter a deposit amount, accept the important acknowldegements, and proceed to request the deposit.

Upon receiving a deposit request, the liquidity vault can accept the deposit, and the user will receive a fair-market percentage of ownership in the pool. To protect users, the interface implements a 5% maximum slippage between the pool percentage a depositor receives and the quoted percentage during the deposit request.

When a deposit is in progress, it will appear with an hourglass icon below the collection name.

Pending deposits, and the current deposited amount, will be updated for everone on their respective card.

Withdrawal Process

Users can request a withdrawal of all or part of their ownership in a liquidity vault. The pool has 7 days to process the withdrawal request. If the pool fails to service the withdrawal within this timeframe, the user can initiate a "rage quit" process.

In the event of a rage quit, the user will receive a basket of assets representing the pool's positions and cash balances, instead of just the base currency. This mechanism ensures that users can exit the pool and receive their fair share of the pool's assets, even if the pool fails to process the withdrawal request.