Providing Liquidity
Overview
When you provide liquidity on HertzFlow, you deposit USDT into isolated market pools that serve as the counterparty to leveraged traders. In return, you earn yield from trading fees, borrow fees, and trader losses.
It works like this: traders pay fees and borrow your capital to open leveraged positions. When traders lose, the pool grows. When traders win, the pool pays out. Over time, fee income and the statistical edge of the house tend to generate consistent positive returns for LPs.
Two Ways to Provide Liquidity
HzLP: Market-Specific Pools
Each market has its own isolated liquidity pool. When you deposit USDT, you receive HzLP tokens representing your share of that pool.
How it works:
You pick a specific market (e.g., BTC/USD, ETH/USD)
Your capital only backs trades in that market
Your returns depend on that pool's fee income and trader PnL
If the BTC pool has a bad day, your ETH pool deposit is unaffected
Best for: LPs who want granular control over which markets they're exposed to.
HzV: Vault Aggregation
Vaults aggregate liquidity across multiple markets that share the same strategy. Your capital shifts automatically between markets based on utilization and fee opportunities.
How it works:
You deposit USDT and receive HzV tokens
The vault allocates your capital across multiple pools
Rebalancing happens automatically — no manual management needed
Your returns reflect aggregate vault performance
Best for: LPs who want diversified exposure with minimal effort.
Depositing
When you deposit USDT into a pool, you receive HzLP tokens (or HzV tokens for vaults). The protocol automatically splits your deposit 50/50 between long and short collateral reserves, regardless of current open interest.
Your HzLP/HzV token price:
As traders pay fees and realize losses, the pool's AUM increases and your tokens become worth more. Conversely, trader profits decrease pool value.
Deposit limits: Each pool has a maximum AUM cap to prevent over-concentration:
If a pool is near capacity, you'll see the remaining deposit cap in the interface.
Withdrawing
Withdrawing burns your HzLP/HzV tokens and returns USDT at the current token price. Withdrawals settle instantly on-chain — no waiting periods.
However, withdrawal amounts are subject to two real-time constraints that protect remaining LPs and ensure adequate liquidity for active positions. Your effective withdrawal limit is the lower of these two checks:
PnL Factor Constraint — limits withdrawals when traders hold large unrealized profits
Reserve Factor Constraint — ensures enough liquidity remains for open positions
The remaining withdrawal cap is always visible in the pool interface. If it's lower than expected, it usually means traders currently hold large unrealized profits or pool utilization is high.
Automatic Rebalancing
Every deposit is split 50/50 between long and short collateral — the protocol handles this automatically. This ensures the pool can serve both sides without bias, regardless of open interest distribution.
Deposits and withdrawals have zero price impact fees — unlike trading actions, your LP operations won't be charged dynamic impact fees.
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