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Examples

Legends of Parameters

There are 3 key parameters that dictate the behavior of PALM's liquidity bootstrapping
  • Range size (S): the number of ticks enclosed in a range
  • Allocation (L): the percentage of liquidity deployed in a position
  • Rebalance threshold (T): the boundary across which a rebalance is called

Example

In this example, 3 positions are set in PALM, and the price P initially is in M. Only a portion of the total liquidity is deployed while the rest is set aside in the vault as reserve.
If P crosses either threshold (dotted line) in the left position L or right position R, a rebalance is called.
Assuming that P crosses the threshold in L, during the rebalance:
  • L now becomes the new middle position M1, which means that both assets from inventory management are added into M1 so that it has the same allocation as M.
  • M now becomes the new right position R1, which means that more governance token from inventory management is added into R1 so that it has the same allocation as R.
  • A portion of the base asset equal to L from inventory management is deployed to create a new left position L1.
  • R is removed and put aside under inventory management.
After the rebalance, now the reserve has less base asset and more governance token than its initial state.
If P now trends up, a rebalance will be called once P has crossed the threshold in R1.
During the rebalance:
  • R1 now becomes M again, which means that part of the allocation in both assets in R1 is removed and put aside under inventory management.
  • M1 now becomes L again, which means that part of the base asset in M1 is removed and put aside under inventory management.
  • A portion of the governance token equal to R from inventory management is deployed to recreate R.
  • L1 is removed and put aside under inventory management.
After the rebalance, now the vault is back to its initial state.
If P continues trending up, a rebalance will be called once P has crossed the threshold in R.
During the rebalance:
  • R now becomes the new middle position M2, which means that both assets are removed from M2 and put aside under inventory management so that it has the same allocation as M.
  • M now becomes the new left position L2, which means that part of the base asset is removed from L2 and put aside under inventory management so that it has the same allocation as L.
  • A portion of the governance token equal to R from inventory management is deployed to create a new right position R2.
  • L is removed and put aside under inventory management.
After the rebalance, now the reserve has more base asset and less governance token than its initial state.