Exclusive Pools
In GlowSwap, the borrower reserves liquidity by moving assets from the public “source” pool into a private “exclusive” pool. This exclusive pool is only accessible to the borrower, who can trade with it as they please. Borrowers pay interest for this exclusive right, and that interest flows back to liquidity providers (LPs).
Minimum Liquidity Requirement
When borrowers reserve liquidity, they must ensure that the exclusive pool has enough liquidity to repay the loan. To enforce this, the exclusive pool’s independent liquidity must be greater than or equal to the difference in liquidity in the main pool that the loan is creating.
Private Swaps
Exclusive pools are also constant product (x * y = k) AMMs, but they are only accessible to the borrower. This allows the borrower to trade with the exclusive pool at any time as long
as they maintain the minimum liquidity requirement.
If a borrower wants to borrow 100 liquidity from the main pool, the exclusive pool always has to maintain a liquidity of 100 or more to ensure that the loan can be repaid.
In this respect, exclusive pools follow the invariant that:
x * y >= liquidityBorrowed^2
Interest Pre-Payments
While exclusive pools have to maintain a minimum liquidity requirement, they are also required to pay interest based on the amount of liquidity borrowed.
Borrowers define a ratio of asset x: asset y that the exclusive pool should pay back the interest liquidity in.
For example, if a borrower borrows 100 liquidity from the main pool and there interest rate of 10%, they would have to pay 10 liquidity as interest back into the main pool throughout the year.
Below are some examples of how paying interest works in GlowSwap.
Paying Interest Example 1 (1:1 Ratio)
Let’s say that a main pool has 1000 GLOW and 1000 USDC. A borrower borrows 100 GLOW and 100 USDC from the main pool. The borrower also adds 50 GLOW and 50 USDC as prepaid interest to the exclusive pool. The borrower also wishes to pay the interest in a 1:1 ratio.
The sequence of events is as follows:
Assuming a constant interest rate of 10% over 1 year, the borrower now owes 10 liquidity to the main pool as interest.
Since the borrower wishes to pay in the ratio of 1:1, they would have to pay 10 GLOW and 10 USDC back to the main pool as interest.
The state transitions would be as follows:
| Pool | GLOW | USDC | Liquidity |
|---|---|---|---|
| Main Pool (Before) | 900.00 | 900.00 | 900.00 |
| Exclusive Pool (Before) | 150.00 | 150.00 | 150.00 |
| Main Pool (After) | 910.00 | 910.00 | 910.00 |
| Exclusive Pool (After) | 140.00 | 140.00 | 140.00 |
Paying Interest Example 2 (2:1 Ratio)
Let’s look at a different example with the same setup, except that the borrower wishes to pay the interest in a 2:1 ratio.
In order to pay back the 10 liquidity owed to the main pool, the borrower would have to pay 13.34 GLOW and 6.67 USDC back to the main pool as interest.
The state after the interest payment would be as follows:
| Pool | GLOW | USDC | Liquidity |
|---|---|---|---|
| Main Pool (Before) | 900.00 | 900.00 | 900.00 |
| Exclusive Pool (Before) | 150.00 | 150.00 | 150.00 |
| Main Pool (After) | 913.34 | 906.67 | 910.00 |
| Exclusive Pool (After) | 136.66 | 143.33 | 139.95 |
Key Points
- Exclusive pools are constant product AMMs that maintain a minimum liquidity requirement equal to the liquidity impact of the loan.
- Only owners of the exclusive pool can trade with it.
- Exclusive pools can be used to pay interest on the loan in any ratio.
- Any liquidity in excess of the liquidity impact of the loan is used to pay interest on the loan and can be pulled out of the exclusive pool (minus already accrued interest).