Market Making & Liquidity Provision Programme Disclosures, Terms & Conditions

2.1 Purpose

The AssetBase Market Making and Liquidity Provision Programme enables qualified participants to deposit capital into Liquidity Pools that facilitate trading of tokenized real-world assets on the AssetBase exchange. LPs earn a share of trading fees generated by the pool in exchange for bearing the risks associated with liquidity provision.

2.2 AMM Architecture

AssetBase's liquidity infrastructure is built on the Uniswap v4 protocol framework, using the full range constant product AMM model. Key architectural features include:

• Full-Range Liquidity: LP capital is allocated across the entire price spectrum (zero to infinity) using the constant product formula x × y = k. LPs do not select or manage a specific price range — their capital is always active and always earning fees on every trade that occurs in the pool.
• Singleton Contract Architecture: All pools are managed within a single smart contract deployment, reducing transaction costs and enabling efficient multi-hop routing.
• Hooks: AssetBase deploys custom Hook modules to enforce compliance requirements (e.g., whitelist verification before swap execution), implement dynamic fee adjustments, and integrate oracle-anchored pricing controls.
• Flash Accounting: Uniswap v4's flash accounting system settles net token balances at the end of each transaction, reducing gas costs for complex operations.

Because AssetBase uses full-range liquidity, LPs do not need to actively manage price ranges or rebalance positions. However, this does NOT eliminate risk. Impermanent loss still occurs whenever the price of the paired tokens diverges from the ratio at the time of deposit. The full-range model simply means your capital is always working — but also always exposed.

2.3 Eligibility

Participation in the Programme is restricted to:

• Individuals or entities that have completed AssetBase's KYC/AML verification process and hold a verified account.
• Participants who are not subject to sanctions, regulatory prohibitions, or jurisdictional restrictions that would prevent participation.
• Participants who have read, understood, and acknowledged the risk disclosures in this document.
• Participants who meet any minimum capital requirements specified for specific Liquidity Pools.

AssetBase reserves the right to restrict or deny participation at its sole discretion.

3.1 The Concept

When you provide liquidity on AssetBase, you deposit a pair of tokens — typically an Asset Token (e.g., a tokenized equity or debt instrument) and a base currency (e.g., USDC or a Naira-denominated stablecoin) — into a Liquidity Pool governed by a smart contract. Your deposit enables other users to buy and sell the Asset Token by trading against your liquidity. The AMM algorithm determines the price of each trade based on the ratio of tokens in the pool.

When someone buys an Asset Token, they add base currency to the pool and remove Asset Tokens. When someone sells, they add Asset Tokens and remove base currency. After each trade, the pool's token ratio — and therefore the price — adjusts automatically.

3.2 Full-Range Liquidity Model

AssetBase uses a full-range liquidity model built on Uniswap v4's infrastructure. Under this model:

• Your capital is deployed across every possible price point, from zero to infinity. There is no price range to select or manage. Your position is always active.
• Every trade that occurs in the pool generates fees for you, regardless of where the price is. You earn fees proportional to your share of the total pool liquidity.
• However, as the market price moves, the AMM automatically rebalances the composition of your position. If the Asset Token's price increases, the pool sells your Asset Tokens and gives you more stablecoins. If the price decreases, the pool sells your stablecoins and gives you more Asset Tokens. This rebalancing is automatic and cannot be prevented — it is the fundamental mechanic of the constant product AMM.

This rebalancing is the source of impermanent loss. You always end up with more of the token that has declined in value and less of the token that has increased in value, compared to simply holding both tokens in your wallet.

Declined in value — the count of the token or economic value of the token that has less demand. For example, for XYZ/USDC: high demand for XYZ means traders are taking out more of XYZ and depositing USDC into the pool, so LPs end up holding more USDC as their XYZ tokens are exchanged for USDC. The converse is also true, except that the economic value of the XYZ tokens you are holding has dropped, resulting in an impermanent loss.

3.3 What Happens to Your Tokens as the Price Moves

When you deposit into a pool, your tokens are held by the smart contract. As other users trade:

• If the Asset Token's price rises: The pool automatically sells some of your Asset Tokens and accumulates more stablecoins. You benefit from the price increase, but less than if you had simply held — because the AMM sold your appreciating tokens on the way up.
• If the Asset Token's price falls: The pool automatically buys more Asset Tokens using your stablecoins. You now hold more of a depreciating asset and less of your stable capital. Your loss is worse than if you had simply held the original 50/50 split.
• If the Asset Token's price returns to exactly the entry ratio: Your position returns to the original composition. The impermanent loss reverses. But you have earned trading fees throughout, so you may be net positive.
• If the Asset Token's price goes to zero: Your position is converted entirely to the worthless Asset Token. You lose all value from that side of the pair. This is a total loss scenario on the Asset Token component.

3.4 The Role of Hooks

AssetBase uses Uniswap v4 Hooks to customise pool behaviour for tokenized securities:

• Compliance Hooks: Verify that both parties to a swap are KYC-verified and whitelisted before the transaction executes. Non-compliant wallets are rejected at the smart contract level.
• Dynamic Fee Hooks: Adjust trading fees in real time based on volatility, liquidity depth, and market conditions. During periods of stress, fees may increase to compensate LPs for elevated risk.
• Oracle Integration Hooks: Reference external price feeds (for publicly traded assets) to detect abnormal price deviations and trigger circuit breakers or trading halts when necessary.

3.5 How LPs Earn Revenue

LPs earn a proportional share of the trading fees generated by their Liquidity Pool, based on the size of their position relative to total pool liquidity. Because full-range LPs are always active, they earn fees on every trade. Revenue is accrued in real time and is claimable at any time, subject to any applicable withdrawal controls. Whether the fee income earned exceeds the impermanent loss suffered is determined by trading volume, price volatility, and the duration of the LP position.

There is no guarantee that fee income will exceed impermanent loss.

4.1 What Is Impermanent Loss?

Impermanent loss is the difference between the value of your LP position and what you would have had if you had simply held the same tokens in your wallet without providing liquidity. It occurs because the AMM's constant product formula automatically rebalances your position as prices move — always selling the appreciating token and buying the depreciating token. The loss is called “impermanent” because if the price returns to exactly the ratio at which you deposited, the loss reverses to zero. In practice, however, prices rarely return to the exact original ratio, and the loss frequently becomes permanent when you withdraw.

4.2 How Impermanent Loss Works — A Practical Example

Suppose you deposit the following into an AssetBase Liquidity Pool:

• 1,000 XYZ tokens (a tokenized private equity position) valued at ₦1,000 each = ₦1,000,000
• 1,000,000 cNGN (Naira stablecoin) = ₦1,000,000
• Total deposit value: ₦2,000,000

Now suppose the price of XYZ doubles to ₦2,000 per token due to trading activities:

You “grew” from ₦2,000,000 to ₦2,828,427 (you made a gain), but you gained ₦171,573 LESS than you would have by doing nothing. This, however, is yet to account for trading fees that may have been earned during the trading activities on the token. The volume of trades will determine the amount you earn in trading fees, and it may or may not be up to the amount you would have earned if you simply held the tokens and stablecoin.

4.3 Impermanent Loss at Different Price Multiples

The magnitude of impermanent loss depends on how much the price moves from your entry point, regardless of direction:

4.4 The Cruel Maths of LP for Private Assets

Tokenized private assets on AssetBase have a specific characteristic that makes impermanent loss particularly relevant: their prices move in large, discrete jumps rather than the continuous small movements seen in public markets. A new funding round that revalues a company by 2–3x, or a negative corporate event that halves the valuation, creates a sudden and substantial impermanent loss event.

Unlike public equities where the price moves 1–2% per day and IL accumulates slowly, a single revaluation event on a private asset can create 5–15% impermanent loss in one moment. LPs must factor this discrete-jump characteristic into their risk assessment.

5.1 When Impermanent Becomes Permanent

Impermanent loss becomes permanent loss in the following scenarios:

• Withdrawal at a different price ratio: If you withdraw your LP position when the price ratio is different from your entry ratio, the impermanent loss is crystallised as a realised, irreversible loss. The “impermanent” label is only meaningful if you never withdraw, and even then, it is a real opportunity cost.
• Underlying asset value deterioration: If the tokenized asset's value declines permanently (e.g., the issuing company fails, a real estate project loses value, or a debt instrument defaults), the AMM has been buying more of the depreciating token all the way down. Your position becomes increasingly concentrated in a near-worthless asset.
• Asset Token goes to zero: If the underlying asset becomes worthless, the AMM has fully converted your position to the worthless token. You lose the entire Asset Token component of your deposit. Your stablecoin component has been sold by the AMM to buy more of the declining token.
• De-listing or trading halt: If an Asset Token is de-listed from AssetBase due to issuer default, regulatory action, or other reasons while you have an active LP position, you may be unable to exit your position and may suffer a total loss on the Asset Token component.

5.2 Total Loss Scenarios

Suppose you deposit the following into an AssetBase Liquidity Pool:

• 1,000 XYZ tokens (a tokenized private equity position) valued at ₦1,000 each = ₦1,000,000
• 1,000,000 cNGN (Naira stablecoin) = ₦1,000,000
• Total deposit value: ₦2,000,000

LPs should understand that total loss of deposited capital is possible. Scenarios include:

• The underlying real-world asset becomes worthless (issuer insolvency, project failure, fraud) while you are providing liquidity — the AMM has been accumulating the failing token with your stablecoins all the way down.
• A smart contract exploit drains the Liquidity Pool of all tokens.
• Regulatory action freezes or seizes pool assets under ERC-1400 controller operations.
• The Asset Token is permanently de-listed with no redemption pathway.
• A combination of severe price decline, impermanent loss, and insufficient fee income to compensate.

6.1 Smart Contract Risk

AssetBase's Liquidity Pools are governed by smart contracts deployed on the Base L2 blockchain. Smart contracts are software and may contain bugs, vulnerabilities, or design flaws that could be exploited by malicious actors or result in unintended behaviour.

The Uniswap v4 Singleton Contract architecture concentrates all pools in a single contract. A vulnerability in the Singleton Contract could affect ALL liquidity pools simultaneously.

AssetBase's custom Hooks introduce additional smart contract surface area. Each Hook is a potential point of failure or exploit.

Professional smart contract audits reduce but do not eliminate this risk. No audit guarantees security. Audited contracts have been exploited in the past.

6.2 Oracle and Price Feed Risk

Token prices are influenced by external oracle feeds. If oracle feeds fail, become stale, or are manipulated, the AMM may accept trades at incorrect prices, causing direct loss to LPs through adverse selection.

For privately held assets without public price feeds, oracle reference values may be infrequent. Between valuation updates, the oracle reference may not reflect the true current value, and informed traders may exploit this lag against LPs (a form of adverse selection known as “toxic flow”).

Oracle manipulation attacks — where an attacker artificially moves the oracle price to execute trades at favourable prices against LP positions — are a known risk in AMM systems.

6.3 Adverse Selection and Toxic Flow

LPs in an AMM are counterparty to every trade. When an informed trader knows the price is about to move (e.g., due to a forthcoming revaluation, corporate event, or news), they trade against the pool at the stale price, extracting value from LPs. This is called “toxic flow” or adverse selection.

In the context of tokenized private assets, adverse selection is particularly acute because valuation updates are infrequent and may be known to insiders before they are reflected in the oracle. LPs are effectively selling cheap insurance to informed traders.

AssetBase's compliance Hooks and circuit breakers mitigate but do not eliminate this risk.

6.4 Market and Volatility Risk

Tokenized real-world assets may experience significant price volatility, particularly around corporate events (funding rounds, earnings releases, management changes, regulatory actions).

Private asset valuations move in large, discrete jumps. A single revaluation event can create substantial impermanent loss instantaneously.

Macro-economic factors, interest rate changes, currency fluctuations (particularly NGN/USD), and investor sentiment shifts can all affect underlying asset values and therefore LP positions.

6.5 Liquidity Risk

There may be insufficient trading activity to generate fee income that compensates for impermanent loss. Low-volume pools are particularly vulnerable to net negative returns for LPs.

During market stress, other LPs may withdraw capital, concentrating risk on remaining participants and increasing slippage on their positions.

For tokenized private assets, there may be no external market to reference or exit to outside AssetBase.

6.6 Regulatory and Legal Risk

AssetBase operates under the SEC Nigeria ARIP sandbox. Regulatory action, changes in law, or unfavourable terms could affect the Platform's ability to operate or the tradability of Asset Tokens.

Tokens may be reclassified, restricted, frozen, or burned by regulatory or judicial order under ERC-1400's controller operations.

Tax treatment of LP income, impermanent loss, and token transactions is uncertain. LPs are solely responsible for their own tax obligations.

6.7 Counterparty and Issuer Risk

The value of Asset Tokens depends on the performance of the underlying issuer. Issuer default, fraud, mismanagement, or bankruptcy can result in total loss of the Asset Token's value — and the AMM will have been buying more of the failing token with your stablecoins all the way down.

AssetBase conducts due diligence on issuers but does not guarantee issuer performance, solvency, or the accuracy of issuer-provided information.

6.8 Technology and Infrastructure Risk

The Base L2 blockchain, Ethereum mainnet, Privy/Quidax custody infrastructure, and AssetBase's own systems are all technology dependencies. Failure or compromise of any layer can prevent trading, withdrawals, or fee collection.

Network congestion, gas price spikes, or blockchain reorganisations may delay transactions at critical moments, preventing LPs from withdrawing during fast-moving markets.

6.9 Impermanent Loss Compounding

Trading fees earned by LPs may be re-deposited or accumulated in the position. In periods of high volatility, impermanent loss can exceed cumulative fee income, resulting in net negative returns.

There is no guarantee that fee income will ever compensate for impermanent loss. Historical fee yields are not indicative of future performance.

The longer you remain in a pool during a sustained directional price move, the larger the impermanent loss becomes. Time does not heal impermanent loss — only a price reversal does.

6.10 Conflict of Interest

• AssetBase may itself act as a Liquidity Provider in the same pools as external LPs. AssetBase has information advantages (e.g., knowledge of upcoming listings, corporate events, or oracle updates) that external LPs do not have.
• AssetBase has implemented conflict-of-interest controls, including inventory exposure limits and transparent pricing. However, the inherent information asymmetry cannot be fully eliminated.

7.1 Trading Fee Share

LPs earn a share of the trading fees on every swap executed in their Liquidity Pool. The fee rate is set per pool and may be adjusted dynamically by AssetBase's Dynamic Fee Hooks based on market conditions. Indicative fee tiers:

AssetBase may retain a protocol fee on certain pools, which will be disclosed in the specific Pool Terms before LP participation. Protocol fees, if applied, are deducted before the LP share is calculated.

7.2 Incentive Programmes

AssetBase may offer additional incentive rewards for LPs in designated pools. These may include platform token distributions, fee multipliers, or other mechanisms. Incentive programmes are discretionary, time-limited, and may be modified or discontinued at any time without notice.

7.3 Costs to LPs

• Gas fees for depositing, withdrawing, and claiming fees (paid to the Base L2 network, not to AssetBase).
• Impermanent loss (a direct economic cost inherent to AMM participation — not a fee, but a real cost).
• Opportunity cost of capital locked in the pool versus alternative investments.
• Potential adverse selection losses from informed traders trading against the pool.

8.1 Deposits

LPs deposit paired tokens into a Liquidity Pool by interacting with the Platform's smart contracts. Under the full-range model, LPs deposit both tokens in a ratio that corresponds to the current pool price. The smart contract determines the exact quantities. Deposits are confirmed on-chain and are irreversible once executed.

8.2 Withdrawals

LPs may withdraw their position (partially or fully) at any time, subject to:

• The current pool composition: you receive tokens in the ratio determined by the CURRENT price, not the ratio at the time you deposited. If the price has moved, you will receive a different split of tokens than you put in.
• Any lock-up periods or withdrawal controls specified in the Pool Terms for specific assets.
• Available liquidity in the pool (in extreme scenarios, withdrawal may be delayed if pool liquidity is insufficient to process the withdrawal).
• Gas fees for the withdrawal transaction.

8.3 Fee Claiming

Accrued trading fees may be claimed separately from the principal position. Fees are denominated in the pool's token pair and are subject to the same price risks as the underlying tokens.