Comet Liquidity System
Discover the innovative design of Clone's Comet Liquidity System.
Last updated
Discover the innovative design of Clone's Comet Liquidity System.
Last updated
A "Comet" in Clone's Comet Liquidity System is a unique concept inspired by the mechanism of concentrated liquidity Market Makers (CLMM) first introduced by Uniswap V3. These AMMs allow Liquidity Providers (LPs) to concentrate their liquidity within specific price ranges. This means the narrower the range they choose, the higher the yield they receive due to the increased risk of their liquidity becoming inactive with rapid price movements. Concentrated liquidity essentially acts as leveraged liquidity, presenting unique opportunities in synthetic asset pools. A comet can be thought of as a liquidity position within a certain range in our unique comet AMM (cAMM) pools, backed by collateral. When an LP creates a comet, they must deposit some level of collateral and then specify a total amount of collateral and cloned assets (clAssets) they wish to borrow and contribute as liquidity.
The name "Comet" comes from an analogy with the celestial bodies within our solar system. A comet in space often has an unstable orbit around the sun, gradually getting closer until, eventually, it might get too close and disintegrate. Similarly, a comet in the Comet Liquidity System has its own kind of "orbit" - the price range within which it provides liquidity. If a comet's associated price falls outside this range it will be in danger of liquidation.
A Comet liquidity position is cross-margin and single-sided, meaning a single source of USDC collateral can back liquidity across multiple clAsset pools simultaneously. This complex system requires a robust health score calculation to maintain the overall health of the position, rather than a simple price range. The flexibility of collateral backing multiple liquidity positions at once allows for more flexible and potentially more profitable liquidity provision.
In the following sections, we will delve into the underlying mechanics of the Comet Liquidity System, including detailed explanations on the Health Score and the Liquidation process. Each of these components plays a critical role in maintaining system stability, managing risk, and ensuring the smooth operation of the ecosystem.
