Whenever liquidity is deposited into an AMM pool, specific tokens known as liquidity providers tokens (LP tokens) are minted and sent to the provider’s address. The proportion of the pool’s liquidity provided determines the number of liquidity tokens the provider receives. A liquidity pool is a core mechanism of AMM (Automated Market Makers), where at least two assets are deposited to form a trading pair.
By staking your LP tokens into the Polygon LP Staking Program, users are entitled to receive additional rewards in the form of $IDLE.
LP Staking Program Rationale
LP staking is a way to incentivize liquidity provisioning for IDLE/WETH pairs on decentralized exchanges. Idle Leagues proposed this reward mechanism and Governance approved the deployment of the staking contracts. Idle Governance launched this LP staking program using the same model applied for Ethereum LP Staking program (Ampleforth Geyser model) to reward liquidity providers that became part of the Idle ecosystem on Polygon.
The Geyser contract has a built-in mechanism intended to incentivize long-term liquidity providers. While there are no hard lockups for staking, there is a benefit to keeping your staked position longer.
The reward multiplier linearly increases over the following periods:
0-1 month -> from 1x up to 2x
1-2 months -> from 2x up to 3x
2-3 months -> 3x
By holding the funds in the staking contract until the final rewarding block, LPs will receive the token bonuses not accrued by LPs that withdrew funds earlier.