Lending LP Positions

The Lending-LP position (occasionally called a Deposit-LP Position), is a Long position whereby the investor constantly switches their position in and out of a Lending position which means they are either: Lending, Not Lending, or something in between (i.e. partially Lending).

The main risk to this position is that it may be a zero-carry position.

At the onset, the LP position is 'waiting' for it to be loaned, and until such time that a Borrower comes along, there is no one to switch the position from the Reference Market into the Subscription Market (where it earns interest). In this sense, the return that this investor will receive will be less than that amount had they just done a simple deposit.

To offset this risk, the Lending LP is entitled to a share of the fees from the overall fees from the Subscription Market, in proportion to trades that were performed within the range that they are providing liquidity in.