Liquidity Mining

Position NFT

As mentioned earlier, in a concentrated liquidity protocol, the liquidity that is added by a user within a custom price range can be called a position or a liquidity position. The user will get an NFT generated by the smart contract as an ownership proof of the position.

The NFT will record the following information of a position:

• A unique id

• Pool address

• Position index in pool

• Position name

• Description

• NFT url

• Position’s lower tick index

• Position’s upper tick index

• Liquidity

A liquidity provider needs to own the Position NFT to have the authority to collect the fees generated by the position and earn corresponding liquidity mining rewards. For certain pools, a Position NFT can also be staked to certain smart contracts to earn additional incentives.

Fee-based Liquidity Mining

In a concentrated liquidity protocol, only the liquidity in those positions with active price ranges could be used by transactions, thereby being able to generate transaction fees. The transaction fee performance of a liquidity position reflects its effectiveness and contribution to the protocol. Therefore, one of the most special characteristics of the liquidity mining of Cetus is that it will distribute its mining rewards to users according to their actual fee performance, instead of based on their liquidity amounts. This requires more active participation if a liquidity provider wants to earn more fees and mining rewards.

As the mining rewards are linearly released, every time there is a new transaction to be executed, the contract will be called to calculate the proportion of fees generated by every single position to the total generated fees of the pool since the last call. The released rewards will be distributed accordingly proportional to each position's generated fees.

This fee-based mining mechanism ensures that the mining rewards will not be diluted by those inactive LPs or users who deliberately allocate liquidity in an invalid price range just for sharing mining incentives. It greatly saves the cost for both the protocol and third party project owners on incentivizing liquidity, which makes the TVL of Cetus more efficient than other DEXes.