Single Sided Liquidity

Canopy’s SSL enables single-token deposits into concentrated liquidity pools.

Canopy’s Single-Sided Liquidity Strategy optimizes yield and mitigates risk by allowing users to provide liquidity using only one token. This strategy dynamically adjusts liquidity positions to maximize efficiency and sustainability.

1. Single-Token Deposits

1.1 Why Single-Token Deposits?

Traditional liquidity pools require two assets in a specific ratio (e.g., 50/50), leading to extra swap costs and exposure to impermanent loss. Canopy’s strategy allows users to:

• Deposit a single token (such as a stablecoin or a native project token).

• Receive a Vault Token representing their share of the liquidity pool.

• Avoid unnecessary swaps that may dilute their position in volatile markets.

1.2 Directional Liquidity

By depositing a single token, users indicate a preference for holding that asset in greater quantity. Canopy’s algorithm ensures minimal selling of the deposited asset, maintaining an optimal inventory balance and preventing unnecessary dilution.

2. Inventory-Based Rebalancing

2.1 Core Concept

Instead of reacting to every price movement, Canopy tracks the inventory ratio (how much of each token is held in the pool). The strategy only rebalances when the pool’s composition deviates from its target ratio, reducing unnecessary swaps and fees while maintaining liquidity efficiency.

Key States:

• Healthy: Liquidity is well-balanced, and the position collects trading fees without rebalancing.

• Over-Inventory: Excess of the deposit token may trigger gradual rebalancing to restore balance.

• Under-Inventory: Shortage of the deposit token leads to controlled accumulation to reach the target ratio.

• High Volatility: The strategy broadens price ranges to mitigate risk during rapid market swings.

• Extreme Volatility: The strategy may temporarily limit rebalancing or require manual intervention to protect deposits.

2.2 No Swap Costs in Rebalancing

Canopy’s strategy prioritizes inventory tracking over swapping, allowing liquidity repositioning without incurring swap costs. This is particularly useful during market fluctuations, ensuring efficient liquidity management without unnecessary asset conversions.

3. On-Chain Autonomy

3.1 100% Smart Contract Logic

All rebalancing functions are executed on-chain, without external control, ensuring:

• Transparency: All adjustments are publicly verifiable on the blockchain.

• Fairness: No privileged entity can manipulate liquidity allocations for personal advantage.

• Security: Funds remain under the depositor’s control, with no custodial risk.

3.2 Automated Triggering

Rebalancing is triggered automatically based on:

• Inventory thresholds (when asset ratios deviate beyond predefined levels).

• Price movements (ensuring optimal liquidity placement).

• Time intervals (periodic adjustments to maintain efficiency).

Users do not need to manually intervene or pay additional gas fees for adjustments.

4. Yield Generation

4.1 Trading Fees

Liquidity providers earn yield through trading fees generated by market activity within their liquidity range. Canopy’s optimized liquidity positions ensure that users remain “in-range” for as long as possible, maximizing fee collection.

4.2 Auto-Compounding Rewards

Earned fees are automatically reinvested into the position, increasing deposit value over time. In governance-driven systems, rewards can also be directed toward liquidity incentives or staking mechanisms for additional yield.