Have you acquired your L1-LP tokens, and are considering getting involved in Layer 2 LP (L2-LP)?
In this article we describe how L2-LPs work, along with the rewards structure to help users better understand these LP tokens and how they operate.
Let’s begin by describing the naming structure of these L2-LPs
L2-LPs on our “Home” Page
You can see a list of available L2-LP farms on our Home page. This is read as “Matching token” + “L1-LP pair”
In image 1 above, this shows the ADA plus the ADA/VYFI L1-LP token pair.
When you approach our DEx to trade, you will be able to directly purchase L1-LP tokens from the market. You can read which L1-LP pair it is by looking at the pair between the “_”. The structure for reading L1-LPs is as follows:
“DEX of LP”_”LP Pair”_”LP” (identifying liquidity pool token)
Under the “your liquidity” tab, you can see your L2-LP like the image above. These use the formal L2-LP token name (also how they will appear in your wallet), which is a combination of how the LPs are shown on the homepage and the L1-LP from trade. Let’s go through it:
Is read as:
“Token paired with the L1LP”/”L1LP” “LP” (to signify it is an LP token)
So this would be the L2LP pair made up of ADA and the ADA/VYFI L1LP.
Estimating L1LP contents inside L2LP
Under this tab, we can see the amount of ADA and LP token held in the L2-LP by the user. We will soon be integrating a method to see the contents of the L1-LP as well. You can quickly estimate the contents of the L1-LP by dividing the ADA contents of the L2-LP by 2. Using the example of Image 3:
Pooled ADA: 11.138
Pooled LP VYFI_ADA/VYFI_LP: 4,985,159
We would divide Pooled ADA by 2, giving us 5.569 ADA + 5.569ADA worth of VYFI. Remember, the pools between the L1-LP and the L2-LP aren’t perfectly arbitraged, so this is an estimate.
The estimated total value of the L2-LP is 11.138ADA + 5.569ADA + 5VYFI = 15.707ADA + 5VYFI. We will have this value shown soon on this page. You can see the current total ADA value of L2-LP that you hold by expanding the L2-LP on the “Home” page and reading “Pool Ownership”, as per Image 4.
How to calculate farms with L2LP tokens.
There are four sources of APR that make up the return on the L2-LPs. These are:
Farm from L-LP
Farm from L2-LP
Fees from L1-LP
Fees from L2-LP
It is important to remember that as the L2-LP has double the value of the L1-LP (as it is made up of the L1-LP matched with its value in ADA), the APR received from the L1-LP farm will be about half as it would if only in the L1-LP. You can hover over “APR” for the L2-LP pool to see the impact of each of these four sources.
MORE INFORMATION ON FARMING WITH VYFINANCE: