Liquidity Queue

Since borrowers can reserve liquidity into exclusive pools, the amount of liquidity that can be withdrawn from the main pool may not always prove to be sufficient for liquidity providers that wish to exit their positions.

Liquidity Queue Example

The following events could lead to a liquidity queue.

Liquidity provider deposits 100 GLOW and 100 USDC into a GLOW/USDC pair

Borrower borrows 90 GLOW and 90 USDC from the main pool

Main pool now only has 10 GLOW and 10 USDC remaining

Liquidity provider must wait for one of the following to fully withdraw:

• New liquidity is added by other providers

• Enough interest is paid to fulfill the exit

• The pool is closed

Max Waiting Period

The worst case scenario for an LP trying to withdraw liquidity is one where the interest rate starts at 0.1% APR, all other liquidity providers have already submitted withdrawal transactions, borrowers are refusing to return any liquidity, and no new liquidity providers are joining the source CPMM even though the APY is astronomical. Even in this scenario, the LP will receive 100% of their liquidity within 57 days, because after that amount of time the borrowers are mathematically guaranteed to have paid enough interest to allow the LP to withdraw their liquidity. If the interest rate starts at 5% APR, the LP will receive 100% of their liquidity back within 40 days.

Key Points

Liquidity providers may have to temporarily wait to withdraw from their positions in case of high utilization
High utilization leads to high interest Rates
The worst case scenario is when the interest rate starts at 0.1% APR, all other liquidity providers have already submitted withdrawal transactions, borrowers are refusing to return any liquidity, and no new liquidity providers are joining the source CPMM even though the APY is astronomical.
- This takes 57 days to resolve