Protocol-Owned Liquidity (Protocol-Owned Liquidity (POL))
Definition
Protocol-Owned Liquidity (POL) is liquidity that belongs to the protocol's treasury rather than being rented from external liquidity providers through emissions. Instead of paying ongoing incentives to attract liquidity, protocols acquire their own LP positions. This was popularized by OlympusDAO's bonding mechanism and has become a key treasury management strategy.
Example
Instead of paying $1M/month in emissions to attract liquidity, a protocol uses bonding to acquire its own LP tokens, building permanent liquidity that doesn't disappear when incentives end.
Risks to Consider
- IL on treasury LP positions
- Capital allocation risk
- Bonding mechanism complexity
Common Questions
Why is POL better than rented liquidity?
Rented liquidity leaves when incentives stop. POL is permanent — the protocol doesn't need to continuously pay emissions to maintain trading depth. It also generates trading fees for the treasury.
