# Temp Check:SLURP-26 | DeFi-PoL delegation fee for stakedotlink's LSTs **URL:** \ **Category:** SLURPs\ **Created:** [September 25, 2024, 8:07pm UTC](https://talk.stake.link/t/temp-check-slurp-26-defi-pol-delegation-fee-for-stakedotlinks-lsts/187 "2024-09-25T20:07:41Z")\ **Posts on this page:** 1\ **Showing post:** 4
**Author:** ![Ari](https://yyz2.discourse-cdn.com/flex032/user_avatar/talk.stake.link/ari/32/11_2.png) [@Ari](https://talk.stake.link/u/Ari)\ **Post date:** [October 9, 2024, 2:08am UTC](https://talk.stake.link/t/temp-check-slurp-26-defi-pol-delegation-fee-for-stakedotlinks-lsts/187/4 "2024-10-09T02:08:37Z")
Thank you for taking the initiative to start and keep pushing the discussion on POL and building deeper liquidity for **stLINK** (and soon **stMETIS** ). This is a crucial issue, and as someone who has been considering the challenges involved, I want to offer some insights that might help guide this conversation for the wider community. ### **Key Considerations for LPs in AMMs** LPs are exposed to **50/50 value allocation** in AMMs. Consequently, LPs may earn slightly more (via **volume x 0.02% trading fees** ) than half the rewards they would have received by simply holding stLINK. If you think about stLINK as if it was wstLINK, we can consider this as **impermanent loss (IL)**, as wstLINK appreciates over time. The graph provides a clear illustration of this concept, showing how stLINK, LPs, and pure LINK holders fare over time. ![LINK yield by strategy](https://canada1.discourse-cdn.com/flex032/uploads/stake/original/1X/93ce46c9e03bfed7396977c85fcdabe193a35fb9.jpeg) ### **Impermanent Loss (IL) Intuition for LPs** We can model the **IL** for LPs versus simply holding stLINK, where negative IL could even benefit LPs. This graph captures the impact of utilization rates, showing how higher trading volumes or lower rewards help mitigate impermanent loss. ![IL by Liquidty Utilization](https://canada1.discourse-cdn.com/flex032/uploads/stake/original/1X/55dcbd444c50173169e5fd9b3623313e8ba44d6b.png) While we should always aim for the **maximum reward rate for stLINK** , it’s true that decreasing the rewards will help mitigate IL for LPs, particularly if those rewards flow to LPs. ### **Building Deeper Liquidity for stLINK** Increasing trading volume and liquidity utilization should trigger **additional incentives** over time. Also, the **amplification coefficient (A)** is very likely crucial in shaping liquidity depth. For instance, I beleive the **stETH pool’s liquidity** has reached an astonishing depth because: 1. Rewards have reduced 2. Trading volume increased 3. The **amplification coefficient (A)** was substantially increased, boosting the pool’s liquidity depth The image below gives some insights of how analogous protocols are adjusting **A (amplification)** and the **Offpeg Fee Multiplier** ![Pool Setup](https://canada1.discourse-cdn.com/flex032/uploads/stake/original/1X/b23a7a3fa7262f8e5e123dac0cbe6fb162e9bd58.jpeg) - **`A ranging from 1 to 5,000`** : `A` is an amplification coefficient, which defines the pool’s liquidity depth. The higher the value of `A`, the deeper the liquidity. - **`Offpeg Fee Multiplier from 0 to 12.5`** : A multiplier that adjusts the Swap Fee based on the pool’s state. The **stLINK/LINK price chart** shows increased stability over time, indicating that stLINK is performing as expected. As **withdrawals** become available, raising **A** (if not already adjusted) would likely improve liquidity even further. Adding the **Offpeg Fee Multiplier** (if possible) could also promote greater price stability by discouraging trades in the “wrong” direction when the pool is off-peg. ![stLINK-LINK Chart](https://canada1.discourse-cdn.com/flex032/uploads/stake/original/1X/1fece740f9a3db777c2c9ff489a6be075d78370b.jpeg) ### **Final Thoughts** Developing a **POL mechanism** , combined with the **Insurance Pool feature** from **SLURP-15** , offers a more sustainable approach to managing liquidity. This approach should help the protocol efficiently adjust liquidity as needed without relying heavily on the DAO Treasury to continuously fund **SDL rewards for liquidity mining** over an uncertain period. Instead, LPs would receive a **more stable and uniform type of reward** that isn’t dependent on **SDL’s price volatility**. By reducing the protocol’s reliance on SDL incentives, this strategy ensures that liquidity provision becomes more self-sustaining and less subject to market fluctuations, providing long-term stability for the pool and the broader ecosystem. Thank you again for bringing this up, and I look forward to continued discussions as we refine the liquidity strategy for stLINK. I’ll be working on modeling the system to gain deeper insights into the proposed 3% fee for both the Operator and Community Pool strategies, although they look pretty good at first glance. --- _[View the full topic](https://talk.stake.link/t/temp-check-slurp-26-defi-pol-delegation-fee-for-stakedotlinks-lsts/187)._