How LP Vaults Work

Concentrated Liquidity, Simplified

Modern DEXes use concentrated liquidity market maker (CLMM) models. Instead of spreading liquidity across all prices, liquidity providers choose a price range. Liquidity earns fees only when the market price is inside that range.

The advantage: capital is far more efficient than traditional AMMs. The challenge: positions go "out of range" as prices move, and require active management. Without active management, your liquidity pool positions run the risk of not earning trading fees.

Fluxtra LP Vaults handle that management for you.

Vault Lifecycle

User deposits token pair (e.g., $MANTRA + $mantraUSD)
        ↓
Vault deploys liquidity into CLMM pool at optimal price range
        ↓
Trading fees accumulate continuously while price is in range
        ↓
Auto-compounder harvests fees + incentives (if any) at regular intervals
        ↓
Harvested rewards are swapped and re-deposited into the LP position
        ↓
If price moves out of range → vault rebalances to new optimal range
        ↓
User withdraws: receives token pair + compounded gains

Vault Shares

When you deposit into an LP Vault, you receive vault share tokens representing your proportional ownership of the vault's total position. Each LP Vault issues its own share token implementing the ERC-4626 tokenized vault standard, which extends ERC-20. That makes vault share tokens fully ERC-20 compatible and composable across MANTRA Chain DeFi. Your shares increase in value as fees compound in.

Withdrawing burns your shares and returns the underlying tokens at the current share price.

Rebalancing

The vault's strategy contract monitors the active liquidity range. When price drifts outside the range, or when tightening the range would improve fee earnings, the vault rebalances. This involves:

1. Withdrawing liquidity from the current position
2. Swapping tokens to achieve the right ratio for the new range
3. Re-entering concentrated liquidity at the new optimal range

Rebalancing incurs gas costs, which are socialized across all vault depositors.

Impermanent Loss

LP Vaults do not eliminate impermanent loss (IL). IL occurs when the price ratio of the two tokens changes from when you deposited. Auto-compounding helps offset IL through fee reinvestment, but it does not eliminate it entirely. The more volume there is in the LP, the more likely that trading fees will overcome IL.

LP Vaults are most suitable for:

• Pairs where you're comfortable holding both tokens
• Pairs with high trading volume relative to price volatility
• Users with a longer time horizon where fee income can offset IL

Auto-Compounding Frequency

Fee harvests and reinvestments occur automatically when the gas cost is justified by the amount of pending rewards. Higher TVL vaults tend to compound more frequently.

Withdrawals

There is no lock-up period. You can withdraw your vault position at any time. You'll receive the underlying tokens in proportion to your vault shares at the time of withdrawal.