Liquidity Balancing is a major innovation developed by the TETU team that minimizes volatility in the TETU token by allocating profit share to buy tokens at a low price and then shift towards adding liquidity when the token price goes up too high too fast. This helps investors feel confident in holding TETU for longer time horizons as they don’t have to worry if the TETU token price volatility will take away from the stability of their earnings over time
In our efforts to keep the price stable from launch day, the team has decided to move a part of the first-week’s Funds emission to the Liquidity Pool.
Liquidity Balancing is implemented using a smart contract that the team developed to automatically rebalance funds called: LiquidityBalancer.
LiquidityBalancer sells a portion of the available amount of TETU Tokens when the price hits the target price and immediately adds equilibrated amount of both tokens to liquidity. After each sale the target price increases.
This liquidity remains in the pool until it reaches the target TVL amount. When the target TVL is reached, the liquidity will be partially withdrawn and the token will be purchased. Every time the target TVL amount is reached, it will increase.
The Liquidity Balancer in action
The Liquidity balancer works as an automated contrarian tool that adds liquidity to the pool when there is huge TETU buying pressure or buys TETU when there are a high volume of assets being added in the liquidity pool, as a result of Liquidity balancer TETU has capital efficiency.
As an example to illustrate how Liquidity Balancer works let's analyze the following hypothesis.
TETU liquidity had begun at an amount of 100K TETU and 10K USDC for a TETU price of $0.10 and $20.000 TVL in the liquidity pool. Price action is illustrated below:
As the price reached the target price Liquidity balancer contract sells 36.6K TETU from the developer's fund smart contract to move the price back to the target price and adds both assets back in the liquidity pool.
As a result of Liquidity balancer action, there will be $15K USDC and 150K TETU at $0.10 for a total value of $30K.
The target price will be increased to 0.1% and the liquidity balancer target price will be $0.1001