How lending pool (LP) tokens work
After lending to the pool, a lender receives lending pool tokens ("LP tokens"). Read further to find how users can track the value of their LP tokens and trade LP tokens.
What are Lending Pool tokens ("LP tokens")?
Lending Pool tokens (or "LP tokens") are tradable ERC-20 tokens that represent a lender’s proportional representation in the pool.
In the beginning, when no loans have been disbursed by the TrueFi lending pool, lenders will receive one TrueFi Lending Pool Token (tfTUSD, tfUSDC, tfUSDT, or tfBUSD) for every stablecoin lent to the pool.
As the pool starts earning yields and disbursing loans, the value of the pool tokens may increase or decrease depending on returns within the pool. The value of the pool represents the present value of all its underlying tokens (stablecoins, loan tokens, and other tokens earned).
How do I calculate LP token prices?
We can calculate LP token price by checking the poolValue() and totalSupply() read functions on the lending pool smart contract:
LP token price = poolValue() / totalSupply()
We can use this LP token price to find how many LP tokens a lender will receive in return for lending tokens to the pool.
Example:
Bob lends 2,000,000 USDC to the tfUSDC pool.
Given that tfUSDC poolValue()= 46226887530770 and totalSupply()
42405680290948 at the time of lending, we calculate tfUSDC LP price = 1.0901.
Bob will thus receive 2,000,000 / 1.0901 = 1,834,675.99 tfUSDC LP tokens
Additionally, we can calculate the value of a lender's position at any point in time:
Lender's position value = (# of LP tokens held) * (LP token price)
Are LP tokens tradable on secondary markets?
Yes, LP tokens can be traded on secondary markets. There are existing markets on Uniswap v3 today.
Why is there a difference between calculated LP token price and its price on Uniswap?
LP token prices calculated by the lending pool assume that loans will be repaid successfully within the term, among other assumptions.
Other market participants may have use different assumptions in their calculation of LP token prices. There are several market factors that may govern the price of lending pool tokens and the TrueFi platform does not have any control over them.
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