Protocol Owned Liquidity

Protocol-Owned Liquidity (POL) refers to liquidity that is controlled, managed, and owned by the protocol itself rather than relying solely on external liquidity providers. In Solidus Synth, POL plays a critical role in ensuring price stability, deep liquidity, and sustainable incentives for synthetic assets across multiple chains.

Why Protocol-Owned Liquidity Matters

• Ensures Deep Liquidity & Reduces Volatility – By owning a portion of the liquidity pools, the protocol guarantees that there is always sufficient liquidity for trading synthetic assets (e.g., xsS, xsAvax, xsHype). This reduces slippage and prevents excessive price volatility.

• Minimizes Dependence on External Liquidity Providers – Unlike traditional liquidity models where DeFi protocols rely on third-party LPs (who may withdraw liquidity at any time), POL ensures liquidity remains in the system long-term.

• Protects Against Price Manipulation – A deep liquidity pool owned by the protocol makes it harder for bad actors to manipulate synthetic asset prices through low-liquidity attacks or flash loans.

• Generates Sustainable Revenue – The protocol earns trading fees from its own liquidity, creating a self-sustaining yield mechanism that helps fund future incentives, buybacks, and protocol expansion.

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How POL Works in Solidus Synth

Step 1: Accumulating Protocol-Owned Liquidity

The protocol builds its liquidity reserves through several mechanisms:

✔ Minting Fees – A portion of fees from minting synthetic assets (xsS, xsAvax, xsHype) is used to acquire and lock liquidity into protocol-owned pools. ✔ Trading Fees and LP rewards from DEXs – POL earns a share of fees from transactions in liquidity pools where it provides liquidity. ✔ Bonding Mechanism (Future Feature) – Users can sell assets to the protocol in exchange for discounted synthetic assets, further increasing POL reserves.

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Step 2: How POL Stabilizes the Synth Ecosystem

Once the protocol owns liquidity, it uses this liquidity strategically to ensure a stable and efficient market.

• Maintains Market Depth – Solidus Synth maintains its own liquidity, meaning deep pools are always available for trading.

• Auto-Rebalancing Peg Stability – If a synthetic asset (e.g., xsS) drifts too far from its peg, the protocol can adjust liquidity positions or trade assets to stabilize the price.

• Long-Term Sustainability – Fees generated from POL liquidity flow back into the protocol to fund growth, buybacks, and future development.