LP Tokens

Understanding Liquidity Provider tokens and yield generation through price appreciation

LP tokens represent your stake in the Pupas Protocol pool. Unlike traditional staking that pays rewards in new tokens, Pupas generates yield through LP token price appreciation driven by AI investment returns.

LP Token Fundamentals

What Are LP Tokens?

LP (Liquidity Provider) tokens are receipt tokens that represent your proportional share of the staking pool:

  • Ownership Proof: LP tokens prove your stake in the pool

  • Yield Mechanism: Earn through token price appreciation, not inflation

  • Transferable: LP tokens can be transferred between wallets

  • Redeemable: Burn LP tokens to withdraw USDTu/USDT-ERC20 at current price

Token Standard

  • Blockchain: Waves native token

  • Standard: Waves token protocol

  • Decimals: 6 (matching protocol precision)

  • Symbol: PUPAS LP

Price Appreciation Model

Core Formula

# LP Token Price = Total Pool Balance ÷ Total LP Token Supply
let currentPrice = tryGetInteger("global_lpPrice")

Minting and Burning

Minting Process (Staking)

When you stake USDTu/USDT-ERC20, new LP tokens are minted:

# Calculate LP tokens to mint
let feeAmount = fraction(pmt.amount, MintFee, Scale6)  # 0.3% protocol fee
let cleanAmount = pmt.amount - feeAmount
let lpAmount = fraction(cleanAmount, Scale6, tryGetInteger("global_lpPrice"))

# Mint LP tokens and transfer to user
[
  Reissue(lpId, lpAmount, true),
  ScriptTransfer(i.caller, lpAmount, lpId)
]

Minting Example

Stake Amount
LP Price
LP Tokens Received

100 USDTu

1.00

99.7 LP (after 0.3% fee)

100 USDTu

1.10

90.64 LP (after 0.3% fee)

100 USDTu

1.25

79.76 LP (after 0.3% fee)

Burning Process (Withdrawal)

When you withdraw, LP tokens are burned for USDTu:

# Calculate USDTu to return
let lpAmount = pmt.amount
let amountToWithdraw = fraction(lpAmount, tryGetInteger("global_lpPrice"), Scale6)

# Burn LP tokens and transfer USDT
[
  Burn(lpId, lpAmount),
  ScriptTransfer(i.caller, amountToWithdraw, fromBase58String(assetIdStr))
]

Burning Example

LP Tokens
LP Price
USDTu Received

100 LP

1.00

100.00 USDTu

100 LP

1.10

110.00 USDTu

100 LP

1.25

125.00 USDTu

Yield Calculation

APY Through Price Appreciation

Your yield comes from LP token price increases:

# Calculate yield (pseudocode for demonstration)
let initialLpPrice = 1000000  # 1.00 with 6 decimals
let currentLpPrice = 1150000  # 1.15 with 6 decimals
let yieldPercent = fraction((currentLpPrice - initialLpPrice), 100, initialLpPrice)
# Yield = 15%

Compound Growth

LP token price appreciation compounds automatically:

Month 1: 1.00 → 1.02 (2% gain)
Month 2: 1.02 → 1.04 (2% on 1.02 = 2.04% total)
Month 3: 1.04 → 1.06 (2% on 1.04 = 6.08% total)

No need to claim or reinvest - gains compound within the LP token price.

Price Update Mechanism

Oracle System

LP token prices update hourly via the updateLpPrice function:

@Callable(i)
func updateLpPrice(lpPrice: Int) = {
  let currentOraclePrice = valueOrElse(getInteger("global_lpPrice"), Scale6)
  let oracleChangeDelta = abs(max(
    fraction(currentOraclePrice, Scale6, lpPrice),
    fraction(lpPrice, Scale6, currentOraclePrice)
  ) - Scale6)
  
  # Validate caller and price change limits
  if (i.caller != this) then
    throw("available for self invoke only")
  else if (oracleChangeDelta > OracleVolatilityTolerance) then
    throw("max change for oracle is " + toString(fraction(OracleVolatilityTolerance / 100, Scale6)) + "%")
  else
    [IntegerEntry("global_lpPrice", lpPrice)]
}

Update Process

  1. Data Collection: Oracle aggregates pool value and investment returns

  2. Price Calculation: New LP price computed using formula

  3. Validation: Price change limited to 10% per update

  4. On-chain Update: New price written to smart contract

  5. Event Logging: Price update recorded on blockchain

Price History Tracking

All price updates are recorded on-chain via IntegerEntry("global_lpPrice", lpPrice).

Investment Impact on Price

How AI Investments Affect LP Price

Profitable Investments

Before: Pool = 1,000,000 USDTu, LP Supply = 1,000,000, Price = 1.00
AI Profit: +50,000 USDTu (5% return)
After: Pool = 1,050,000 USDTu, LP Supply = 1,000,000, Price = 1.05

Loss Scenarios

Before: Pool = 1,000,000 USDTu, LP Supply = 1,000,000, Price = 1.00
AI Loss: -30,000 USDTu (3% loss)
After: Pool = 970,000 USDTu, LP Supply = 1,000,000, Price = 0.97

Protocol Fee Impact

Protocol fee (0.3%) is deducted at staking time:

# Staking with protocol fee
let feeAmount = fraction(pmt.amount, MintFee, Scale6)  # 0.3% of stake
let cleanAmount = pmt.amount - feeAmount
let lpAmount = fraction(cleanAmount, Scale6, tryGetInteger("global_lpPrice"))

# Fee sent to treasury, LP tokens based on net stake
[
  ScriptTransfer(FeeAddress, feeAmount, pmt.assetId),
  Reissue(lpId, lpAmount, true),
  ScriptTransfer(i.caller, lpAmount, lpId)
]

LP Token Utility

Current Uses

  • Yield Generation: Hold for price appreciation

  • Withdrawal: Burn for USDTu at current price

  • Transfer: Send to other wallets (maintains yield exposure)

  • Portfolio Tracking: Monitor via Waves Explorer

Future Utility (Roadmap)

  • Governance Voting: Vote on protocol proposals

  • Strategy Selection: Choose preferred AI investment strategies

  • Fee Discounts: Reduced protocol fees for large holders

Risk Factors

LP Token Risks

Smart Contract Risk

  • Code Bugs: Potential vulnerabilities in staking contract

  • Oracle Manipulation: Risk of price oracle attacks

  • Access Control: Centralized oracle updates during early phases

Market Risk

  • AI Strategy Losses: Investment strategies may lose money

  • Liquidity Risk: Large withdrawals may face delays

  • Price Volatility: LP token prices can fluctuate significantly

Mitigation Measures

  • Volatility Limits: 10% maximum price change per update

  • Access Control: Only authorized addresses can update prices

  • Error Handling: Comprehensive validation and error messages

  • Transparency: All operations recorded on blockchain

Risk Disclosure: LP token prices can decrease as well as increase. AI investment strategies don't guarantee profits and may result in losses during adverse market conditions.

Monitoring Your LP Tokens

Key Metrics to Track

Price Performance

  • Current LP Price: Real-time token value from global_lpPrice

  • Price History: Historical oracle updates

  • APY Calculation: Annualized yield based on price appreciation

  • Benchmark Comparison: Performance vs USDT savings rates

Portfolio Value

# Your portfolio calculation (pseudocode)
let yourLpTokens = 997000000  # 997 LP tokens (6 decimals)
let currentLpPrice = tryGetInteger("global_lpPrice")
let portfolioValue = fraction(yourLpTokens, currentLpPrice, Scale6)

Dashboard Features

  • Real-time Price: Updates every hour with oracle

  • Performance Charts: Historical price and yield data

  • Profit Calculator: Estimate returns based on holding period

  • Withdrawal Simulator: Preview withdrawal amounts

Advanced Concepts

Impermanent Loss Comparison

Unlike traditional LP tokens in AMMs, Pupas LP tokens don't suffer from impermanent loss:

Traditional AMM LP
Pupas Protocol LP

Exposed to IL from price divergence

No impermanent loss risk

Earn fees from trades

Earn from AI investment profits

Must provide two tokens

Single token (USDTu) staking

Price tied to underlying assets

Price reflects pool performance

Smart Contract Integration

LP token operations are handled by RIDE smart contract functions:

# Helper functions for safe operations
func tryGetInteger(key: String) = {
  match getInteger(this, key) {
    case a: Int => a
    case _ => 0
  }
}

func tryGetString(key: String) = {
  match getString(this, key) {
    case a: String => a
    case _ => ""
  }
}

Advanced Users: LP token mechanics enable sophisticated strategies. See our Staking Mechanics for technical implementation details.

Next Steps

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