Providing Liquidity

Liquidity is provided through individual BMX pools. Liquidity providers earn fees from leverage trading, borrowing fees and swaps.

Overview

A BMX pool (ByteMX Market pool) consists of:

• Index Price Feed: Long and short tokens will be opened / closed based on this price feed

• Long Token: This is the token that will back long positions

• Short Token: This is the token that will back short positions

For example, a market could be ETH/USD[ETH-USDT], in this case:

• Index Price Feed: ETH/USD

• Long Token: ETH tokens back long positions

• Short Token: USDT tokens back short positions

If a market is labelled as SWAP-ONLY or SPOT-ONLY, then the market only supports swaps and does not support leverage trading.

For single-token backed pools, both the long and short token would be the same, e.g. a single token ETH pool would have both the long token and short token as ETH.

Buying BMX Tokens

BMX tokens can be bought using the BMX Pools page.

Options to bridge funds to buy the tokens can be found at the bottom of the Buy page.

ETH / USDT is also required to send the buy transaction.

Steps:

• Select the "Market" and "Pool" of the BMX token you'd like to purchase in the "Buy BMX" box

• There will be a positive or negative price impact depending on whether your purchase improves or reduces the balance of tokens in the pool

• The price impact will be shown in the "Buy BMX" box

• If the pool is mostly balanced, a large purchase may result in a large negative price impact, to avoid this, select the "Pair" option and buy the BMX token with an equal USD amount of long token and short token

Selling BMX Tokens

BMX tokens can be sold using the BMX Pools page.

Note that since tokens in a market are reserved based on the total open interest of the market, the liquidity available for redemption is capped at the tokens in the pool multiplied by the pool's reserve factor minus the tokens reserved. If this capacity is reached, liquidity providers would need to wait for positions to close before selling the BMX token or for liquidity to be deposited by other providers. The borrow fee rate in this case would also be higher which should help to incentivise deposits.

Token Pricing

The price of the BMX token depends on the price of the long / short tokens and the net pending PnL of traders' open positions.

Fees from leverage trading and swaps will automatically increase the price of BMX tokens.

There may be a spread for some long / short tokens which would result in a spread when buying / selling BMX tokens as well.

For stablecoin tokens, the spread will be from the On-Chain price of the stablecoin to 1 USD.

BMX pools aim to maintain an equal worth of long and short tokens, so e.g. when the price of a long token increases there may be a positive price impact to incentivise selling of long tokens for short tokens to rebalance the pool. While this balancing is incentivised by the pool it is still possible for pools to not be balanced at times. If a pool keeps its balance, its pricing excluding PnL should mimic a pool that is 50% long token and 50% short token and that rebalances as price changes.

Risks​

Caution should be exercised when interacting with any smart contract or blockchain application. While risks are attempted to be mitigated through testing, audits and bug bounties, there is always a risk of vulnerabilities in smart contract code.

A non-exhaustive list of risks:

• Smart contract risks

• Counterparty risks: The BMX pool is the counterparty to traders, if traders make a profit that comes from the value of the BMX pool

• Token risks: Bridged tokens may depend on the security of the bridge, pegged tokens have risks of depegging

While counterparty risk is attempted to be minimized through funding fees and price impact it is not guaranteed that long and short positions will always be balanced. An additional case to note is that if, for example, long positions happen to be balanced with high leverage short positions and there is a sudden price spike, the high leverage short positions could be liquidated, temporarily causing an imbalance of longs and shorts.