Risks & Fees
LP Risks
Providing liquidity on Jetty is not risk-free. The pool takes the other side of every trade, which means LPs are exposed to:
Directional risk. If most traders are positioned the same way and rates move in their favor, the pool loses money on those positions. The protocol mitigates this through inventory fees (which make one-sided flow more expensive) and risk caps (which limit how much exposure the pool can take on), but short-term losses are possible.
Adverse selection. Informed traders may systematically trade ahead of rate moves. Dynamic fees (staleness, volatility, deviation) are designed to price this risk, but they can't eliminate it entirely.
Bad debt. If a trader's account becomes undercollateralized and liquidation doesn't fully cover the loss, the shortfall is absorbed by the pool. This is rare by design (margin requirements and liquidation penalties provide a buffer), but it can happen in extreme conditions.
Withdrawal constraints. During periods of high utilization, most of the pool's capital is backing open positions. You may not be able to withdraw your full balance immediately, and the withdrawal fee will be higher. A rate limiter also caps how much total liquidity can be withdrawn in a rolling time window, protecting against bank-run dynamics.
Fee Revenue
LPs earn from multiple fee streams:
| Fee | How It Works |
|---|---|
| Swap fees | Charged on every trade. Dynamic, with six components that scale with market conditions. The majority flows to LPs. |
| Streaming fees | A small annualized fee on all open positions, accruing continuously. Compensates LPs for ongoing capital commitment. |
| Deposit fees | A flat fee on new deposits. Stays in the pool, increasing NAV per share for existing LPs. |
| Withdrawal fees | A dynamic fee that scales with utilization. Stays in the pool. |
A portion of swap and streaming fee revenue goes to the protocol treasury. The rest goes to LPs.
Reserves
The pool sets aside a capital reserve to cover potential losses from rate moves against open positions. This reserve is based on the pool's aggregate rate sensitivity (DV01) and a configured worst-case rate move.
The reserve reduces the amount available for withdrawal but doesn't affect your equity. It's a conservative measure: the pool doesn't net directional exposure across different markets, so the reserve may be larger than the actual expected loss.
Next Steps
- How LP Works for deposits, shares, and returns.
- How Jetty Works for the full protocol overview.