Heyo stormers! ✌️
In this article, we invite you to explore how liquidity provision works, where the liquidity goes, and the associated risks when providing liquidity on Storm Trade.
What is liquidity provision?
Liquidity Provision is a way to earn passive income by depositing your assets into a pool, where they are utilized by the protocol.
In exchange for the use of liquidity in trading, the exchange rewards providers with a portion of the profits generated from operations conducted within the protocol.
To ensure safe and efficient storage of liquidity on Storm Trade, an audited Vault smart contract has been implemented.
How is liquidity used?
Let’s look at the flow of funds within the Storm Trade protocol (see Fig. 1).
Consider an individual providing liquidity to the Storm protocol [USDT LP]. Their funds are directed into the USDT Vault, designed for collecting and storing liquidity.
The movement of funds within the vault is directly dependent on trading activities on the Storm exchange. Traders open and close positions, pay trading fees, and their funds may be liquidated. From all these actions, liquidity providers earn income.
A portion of the fees, funding, and all negative P&L from traders are sent to the vault as rewards for providers, while positive P&L is paid out from the vault as rewards to traders.
Thus, Storm Trade acts as an intermediary between traders and liquidity providers, enabling both sides to earn effectively.
Why is liquidity provision profitable?
First, providing liquidity on Storm Trade is done with a single token, rather than a pair, as in standard pools. This means you don’t need to find a second token or sell half of your existing assets to invest in pools.
In addition to traders' negative PnL, liquidity providers receive rewards in the form of:
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70% of all trading fees from the protocol;
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35% of liquidation penalties;
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RP rewards through the RP mining program;
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70% of the funding paid by traders.
Why liquidity provision is not staking?
The mechanisms of staking and liquidity provision have completely different internal logic. While staking guarantees a positive return without using staked tokens in trading, provided liquidity becomes part of a pool from which traders borrow funds for margin trading, which can result in both profits and losses.
What is SLP?
SLP is the Storm LP token, which reflects the ratio of the funds earned by liquidity providers to the amount of liquidity they provided (see Fig. 2).
In the chart above (Fig. 2), we can see that the price of USDT-SLP has increased from 1 to 1.24 since the launch of the pool. This means USDT liquidity providers have earned a +24% return on their investment over the past year.
Liquidity pool yields
In addition to the SLP price, the statistics section displays yield metrics for each vault. Let’s take a closer look at the TON-SLP vault as an example (Fig. 3).
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APR 1 Year reflects the annual percentage return based on the vault’s performance over the past year. It gives investors a rough idea of what they could expect over the next 12 months.
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APR 7 Days is calculated from the vault's performance over the last 7 days and annualized to show a projected yield.
Keep in mind that APR is an instantaneous metric and does not represent guaranteed returns.In contrast, ROI shows the actual percentage return liquidity providers have earned over a specific period.
In Fig. 3, we see that current liquidity providers can expect an annual return of 16.24%, while early LPs have already earned 18.6% since the pool’s launch (with TON priced at $2).
Are there risks?
Before the buffer mechanism was introduced, liquidity providers faced a risk known as impermanent loss. This occurred when trader profits exceeded the fees they paid, and those profits were deducted directly from the vault, impacting the SLP price (Fig. 4). But everything changed with the buffer.
In December 2024, Storm Trade implemented a buffer mechanism that collects a portion of trading fees into a reserve. This reserve is then used to cover positive PnL payouts to traders. As a result, liquidity providers enjoy consistent positive returns, even in trending markets (Fig. 5)
Liquidity provision - long-term profitability
Let’s look at some stats. In the chart below (Fig. 6), you can see the PnL distribution of gTrade traders from 2022 to 2024.The light blue bars represent daily PnL fluctuations, while the dark blue line shows cumulative PnL.
As of June 2024, traders have collectively lost over $10 million, which is roughly -5% of the total collateral provided.
This distribution proves that liquidity providers benefit in the long run — and with the buffer in place, they receive guaranteed positive returns.
Conclusion
We hope this breakdown of liquidity provision, its pros and cons, and how it differs from staking helped you better understand how this system works.
With the introduction of its buffer system, Storm Trade is setting a new standard for reliability and yield generation in DeFi on TON.
Thanks to ChainProof’s liquidity insurance and Storm Trade’s innovative mechanics, it’s becoming the safest place for passive income in the ecosystem.
Thank you for reading. Always your Storm team!
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