Ecosystem Liquidity Insurance Fund (ELIF)
Last updated
Last updated
There are always risks in crypto. The value of your tokens can move up and down, and in crypto that can happen quickly.
Prospective token holders are urged to undertake their own due diligence and to only embark on taking part once they have understood the complexities and risks of buying a token.
At AQTIS, our mission is to build the best LSTs possible. To do that, transparency is key. Below we share details on one of the features that makes AQTIS unique: the Ecosystem Liquidity Insurance Fund (ELIF).
The ELIF plays a pivotal role in maintaining the stability and security of the AQTIS ecosystem.
Its primary role is to serve as a strategic reservoir to ensure AQTIS LSTs can maintain their performance, whatever the weather.
The ELIF holds excess yield as a reserve. For example, if our Quant Tech outperforms our expectations, the ELIF will hold native assets and AQTIS tokens to cover the liquidity demand of the LSTs and yield. But there are other areas in which excess tokens can be generated. We cover that in the following sections.
For more information on our Quant Tech, take a look here.
If you’re familiar with the Ecosystem Liquidity Aggregator, or ELA, you’ll be aware that AQTIS LSTs are managed by the ELA. That means Liquidity is utilized in the most efficient way possible by allocating resources to LSTs that might need it more than others.
The ELIF is a pool that supports the function of the ELA. While the ELA is actively managing liquidity, the ELIF holds yield back to create an extra layer of security to the AQTIS ecosystem.
You can see in the below image how the ELA and ELIF relate to each other. Both receive yield from the wider ecosystem, but the ELIF is a fund that is not actively used to manage liquidity on a daily basis.
In summary, the ELIF acts as a liquidity buffer fund between ELA and the Quant Tech. While ELA is active in management exit liquidity, the ELIF is ELA liquidity insurance.
Whenever excess yield is generated inside the AQTIS ecosystem, part of that excess is automatically directed to the Fund.
To cover any eventuality, the goal is to have as much as 20% of the total liquidity in the ELIF.
If the ecosystem continues to perform and the ELIF is full - giving the AQTIS ecosystem more than a year’s worth of yield coverage, any additional yield would go to the treasury and the AQTIS buy-back scheme.
Excess liquidity comes from different parts of the AQTIS ecosystem. Our smart contracts automatically deposit excess from the below into the ELIF.
AQTIS’ quant tech investment strategy - for more information about how our quant tech works, see here.
Ecosystem transaction fees - buying and selling AQTIS incurs a % transaction fee.
Excess yield is defined as tokens that are generated above and beyond the demands of the AQTIS ecosystem.
For example, let’s say Quant Tech delivers a 40% return to the AQTIS ecosystem. Of that 40%, 20% is used to deliver yield to the community, 6.7% of that fund is used to buy back AQTIS tokens, 6.7% is allocated to the AQTIS treasury, and 6.7% goes to the ELIF.
If however, the Quant Tech at the heart of AQTIS delivers greater performance, the allocation to the ELIF would increase. More complete numbers will be released quarterly.
This reserve is strategically designed to safeguard AQTIS LST-holders. Our aim is to fill the fund to cover at least one year of total LST TVL liquidity (15% on average) and up to a 25% drawdown.
The longer the project runs the more robust the fund becomes.
After the ELIF is filled with 20% of LST TVL, ensuring the ELA has enough liquidity to be effective, we would be able to cover yield for 1-2 years.
This would make sure our quant tech can run smoothly without having to exit positions forcibly to cover excess liquidity demand. The ELIF reduces systemic risk by providing a buffer, actively ensuring that the highest performance standards are maintained.
The ELIF is not just a passive insurance fund. It acts as a liquidity buffer between the ELA and the Quant Tech.
In addition, we have the opportunity to alter the size of the ELIF to 40% or increase buybacks and treasury deposits.
No smart contract can directly make claims or access the ELIF. The ELIF itself receives data from the Ecosystem Liquidity Aggregator (ELA) and when the % of liquidity in the ELA drops below a threshold, the ELIF automatically sends liquidity from the insurance fund to the ELA. There is no direct claim to the ELIF to reduce risk.
This important security measure helps ensure that even in the event of a potential external exploit through the Yield Distribution Smart Contracts (YDSC) claiming functions, the maximum risk for AQTIS and token holders is minimized and the ELIF can cover any potential losses.
The amount of liquidity in ELIF will be on-chain and always visible and transparent for the community to see.
The ELIF is AQTIS’ unique approach to ensuring liquidity is available as and when users need it. It captures excess yield from across the AQTIS ecosystem and diverts it into a fund that no one can access, and automatically fills any liquidity gaps that may occur.
If you have any more questions, please see our FAQ section, or join our Discord.
