> For the complete documentation index, see [llms.txt](https://fluxtra-lsd.gitbook.io/fluxtra-lsd-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://fluxtra-lsd.gitbook.io/fluxtra-lsd-docs/flux-liquidity-forge.md).

# Flux Liquidity Forge

The **Fluxtra Liquidity Forge** is a decentralized system that **redistributes staking rewards** to liquidity providers and voters, creating a **sustainable liquidity cycle**. By **redirecting chain rewards into liquidity incentives**, the protocol **deepens market liquidity**, enhances **trading efficiency**, and ensures **long-term economic stability** for DeFi participants.

***

## **Key Mechanics & Participants**

The Fluxtra Liquidity Forge follows a **vote-based incentive model** inspired by ve(3,3) mechanics. Unlike traditional **token emissions**, which can cause inflation, **Fluxtra converts staking rewards** into liquidity incentives, ensuring sustainable **reward distribution** while **building up permanent protocol-owned liquidity**.

## **1. Voters**

* Users **lock ftOM** (or other assets) to **create NFT-based governance locks**.
* Voting power scales with **lock duration** (e.g., **2-year lock = 10x voting power**).
* Users influence **liquidity reward distribution** through **gauge voting**.
* Rewards include **rebases (yield from staked assets) and voting incentives (bribes from projects or fee recapture)**.

## **2. Liquidity Providers (LPs)**

* LPs **deposit funds into liquidity pools** and receive **staking rewards**.
* Rewards are distributed **based on user votes** per liquidity pair.

## **3. Projects**

* Projects can **secure liquidity incentives** in two ways:
  1. **Acquiring ftOM** and participating in **governance votes**.
  2. **Providing bribes** to voters, directing incentives toward their LPs.

## **4. Chain-Level Incentives**

* The chain redistributes **staking rewards into liquidity incentives** instead of overspending on **pure staking rewards**.
* Liquidity is **directly integrated** into lending and collateral protocols, **enhancing DeFi stability**.

## **5. Traders**

* Traders **benefit from deeper liquidity** and **lower slippage** across pairs.

***

## **Reward Distribution**

Fluxtra offers multiple **reward mechanisms** for participants:

1. **Liquidity Incentives** – Staking rewards are converted into **z-assets** and distributed to LPs based on governance votes.
2. **Voting Incentives** – Projects and users can **bribe voters** to direct liquidity incentives toward their pools.
3. **Rebasing Rewards** – Voters **receive additional rewards** based on the underlying **ftOM amount** they have locked.

***

## The **Fluxtra Liquidity Forge** consists of four main sections:

**1. Liquidity Management**

* Users can **deposit, withdraw, or claim liquidity incentives**.
* Available deposit methods:
  * **Zap** – Convert any supported asset into an LP token.
  * **Token** – Deposit LP pool tokens directly.
  * **LP** – Stake pre-existing LP tokens.
  * **Staked LPs** – Transfer LPs staked in other incentive contracts.
* Withdrawal options:
  * **Tokens** – Withdraw the base assets from the LP.
  * **Zap** – Swap LP assets into a selected token.
  * **LP** – Withdraw LP tokens for use in external platforms.

**2. Voting & Governance**

* Users can **lock ftOM** to **gain voting power** and **influence liquidity rewards**.
* Voting power scales with **lock duration** (max **2-year lock = 10x boost**).
* Users **vote per asset group** to allocate liquidity incentives.
* Voting participants **earn rebases and bribes** from projects.

**3. Locking Mechanism (NFT-Based)**

* Locks are **NFTs (CW721 standard)**, allowing:

<table data-header-hidden><thead><tr><th width="246"></th><th></th></tr></thead><tbody><tr><td><strong>Action</strong></td><td><strong>Description</strong></td></tr><tr><td><strong>Create</strong></td><td>Initiates a new lock.</td></tr><tr><td><strong>Withdraw</strong></td><td>Allows users to retrieve assets once the lock reaches its unlock date.</td></tr><tr><td><strong>Enable Auto Max-Lock</strong></td><td>Converts a time-limited lock into a <strong>perpetual max-lock</strong>, maintaining <strong>10x voting power</strong>.</td></tr><tr><td><strong>Disable Auto Max-Lock</strong></td><td>Changes an <strong>auto max-lock</strong> into a fixed <strong>two-year lock</strong>.</td></tr><tr><td><strong>Increase</strong></td><td>Deposits additional assets into an existing lock.</td></tr><tr><td><strong>Extend</strong></td><td>Increases the duration of a specific lock.</td></tr><tr><td><strong>Transfer</strong></td><td>Moves a lock NFT to another wallet, transferring <strong>full ownership</strong>, including voting power and assets.</td></tr><tr><td><strong>Merge</strong></td><td>Combines two locks. If their end times differ, the <strong>shorter lock is extended</strong> to match the longer one before merging.</td></tr><tr><td><strong>Split</strong></td><td>(Not visible in GUI) Allows splitting a lock into multiple separate locks with the <strong>same end time</strong>.</td></tr></tbody></table>

**4. Incentive System for Projects**

* Projects can **set up bribes** to influence governance votes, directing rewards to specific liquidity pools.

***

## **Technical Details & Governance Contracts**

Fluxtra’s Liquidity Forge is structured using **modular contracts**, ensuring a **transparent and automated** governance system:

### **Global Config Contract**

<table data-header-hidden><thead><tr><th width="304"></th><th></th></tr></thead><tbody><tr><td><strong>Right</strong></td><td><strong>Description</strong></td></tr><tr><td><strong>DELEGATION_CONTROLLER</strong></td><td>Manages validator delegation settings within the Fluxtra ecosystem.</td></tr><tr><td><strong>ASSET_WHITELIST_CONTROLLER</strong></td><td>Controls the list of <strong>approved LPs</strong> eligible for staking rewards.</td></tr><tr><td><strong>BRIBE_WHITELIST_CONTROLLER</strong></td><td>Manages assets that can be used as <strong>bribes</strong> in the Bribe Manager.</td></tr><tr><td><strong>VE_GUARDIAN</strong></td><td>Adds or removes users from the <strong>Voting Escrow blacklist</strong>.</td></tr><tr><td><strong>VOTING_ESCROW</strong></td><td>Contract address responsible for the <strong>Voting Escrow system</strong>.</td></tr><tr><td><strong>ASSET_GAUGE</strong></td><td>Contract managing the <strong>Asset Gauge</strong>, tracking governance votes and reward distribution.</td></tr><tr><td><strong>BRIBE_MANAGER</strong></td><td>Handles the <strong>bribe distribution</strong> for liquidity incentives.</td></tr><tr><td><strong>FREE_BRIBES</strong></td><td>Allows certain wallets or contracts to <strong>add bribes without fees</strong>.</td></tr><tr><td><strong>TAKE_RECIPIENT</strong></td><td>Wallet that <strong>receives LP take rate fees</strong>.</td></tr><tr><td><strong>FEE_COLLECTOR</strong></td><td>Collects <strong>bribe fees</strong> from governance operations.</td></tr><tr><td><strong>TEAM_WALLET</strong></td><td>Receives <strong>token emissions</strong> from the Connector Emissions contract.</td></tr><tr><td><strong>MINT_PROXY</strong></td><td>Enables <strong>minting of new tokens</strong> via a proxy mechanism.</td></tr><tr><td><strong>ASSET_STAKING_{gauge}</strong></td><td>Manages <strong>asset staking contracts</strong> for specific liquidity gauges.</td></tr><tr><td><strong>CONNECTOR_{gauge}</strong></td><td>Handles <strong>alliance connector contracts</strong> for liquidity gauges.</td></tr></tbody></table>

### **Voting-Escrow**

Voting-escrow functions as the mechanism through which users lock up OM in exchange for voting power. Users have the flexibility to create multiple locks with different durations and supported assets. These locks are managed by the voting-escrow contract and are represented as NFTs, which can be transferred between wallets.

### **Asset-Gauge**

The asset-gauge contract tracks the total voting power of a user over time and records how they vote in governance decisions. Any modifications to a lock are reflected in the user’s voting power. Additionally, the asset-gauge determines the distribution of rewards based on voting outcomes and directs them to the asset-staking contract. It also manages rebases, which are additional rewards granted to users for participating in the locking mechanism, ensuring that engagement with the protocol provides superior benefits compared to standard staking.

### **Asset-Staking**

Asset-staking is responsible for tracking the staked LP assets of users and managing the distribution of rewards according to the defined schedule. Each token group has its own asset pool, and staked LP positions are automatically restaked into the associated decentralized exchange (DEX) if it offers staking rewards. Any rewards collected from these positions are converted into bribes and distributed in the following epoch, ensuring a continuous flow of incentives.

### **Bribe-Manager**

The bribe-manager contract enables projects to introduce incentives that encourage voters to support specific LP positions. These bribes are designed to influence voting behavior rather than being directly allocated as liquidity provider incentives. They are exclusively awarded to users who vote for the targeted LP in the relevant voting period.

### **Connector-Alliance**

The connector-alliance contract is designed to generate a virtual token (VT) that is then staked in the Alliance Module. The rewards accumulated from this staking process are subsequently claimed and distributed as z-assets within the asset-staking contract. Instead of being directly issued as OM, staking rewards undergo liquid staking and are converted into z-assets, such as locked OM. This internal accounting system separates the yield and principal components of an LST, with the principal being distributed to LPs as liquidity incentives and the yield allocated to voters in the form of rebases.

### **Benefits of Z-Assets for LP Rewards**

The use of z-assets as LP rewards offers several advantages. It allows vote participants to earn rebases from the liquidity incentives stored in asset-staking, ensuring that these rewards continue to generate passive income. This process incentivizes greater voter participation in the gauge system by making it more profitable than traditional staking. Furthermore, it ensures that rewards are utilized efficiently to enhance liquidity incentives. The system discourages market dumping by imposing a markup fee on LST exits, encouraging long-term holding. Additionally, as trading activity increases, LST LPs experience higher transaction volumes, and arbitrage vaults contribute to greater economic activity, benefiting long-term OM holders.

### **Connector-Emissions**

Connector-emissions provides a similar mechanism to the Alliance Module, with the key difference being that it enables token minting rather than liquid staking. While this is not part of the Terra Liquidity Alliance, it serves as a model for projects such as URA DEX.

### **Zapper**

The zapper contract is an upgraded version of the Amp Compounder Zapper, featuring enhanced routing and improved functionality. It facilitates seamless asset conversions by enabling users to convert any supported asset into an LP token, break down an LP into its underlying assets, or swap an LP into another supported asset. Additionally, it allows for asset-to-asset swaps across supported pairs. While it does not replace a full DEX aggregator, it optimizes the transaction process by selecting the shortest conversion path based on liquidity depth, streamlining the user experience for asset conversions.

***

#### **Glossary**

<table data-header-hidden><thead><tr><th width="114"></th><th></th></tr></thead><tbody><tr><td><strong>Term</strong></td><td><strong>Definition</strong></td></tr><tr><td>LP</td><td>Liquidity Provider – Users who provide funds to DEXes.</td></tr><tr><td>LP</td><td>Liquidity Position – The LP token representing liquidity in a pool.</td></tr><tr><td>VP</td><td>Voting Power – Influence in governance gained by locking assets.</td></tr><tr><td>LST</td><td>Liquid Staked Token – A receipt token for staked assets accruing yield.</td></tr><tr><td>z-asset</td><td>Represents the principal value of an LST, separate from staking rewards.</td></tr><tr><td>VT</td><td>Virtual Token – Used to stake in the Alliance Module to receive rewards.</td></tr><tr><td>Epoch</td><td>A weekly cycle that determines reward distribution and voting periods.</td></tr><tr><td>Zap</td><td>A one-click asset conversion mechanism to improve UX.</td></tr></tbody></table>

***


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