Large Withdrawal Handling (Whale Protection)
1. Withdrawal Size Tiers
Withdrawals are classified into three size tiers, each with different processing rules. This prevents a single large LP from destabilising a pool through a sudden mass withdrawal.
| Tier | Threshold | Source | Processing |
|---|---|---|---|
| Standard | < $50K | Reserve Pool (if healthy) | Normal queue processing; FIFO order |
| Large | $50K – $200K | Yield Pool recall | 24-hour advance notice required. Processed in tranches over 24–48 hours. |
| Whale | > $200K | Yield Pool recall + coordination | 72-hour advance notice required. Processed in daily tranches of max $100K/day. OTC coordination offered as alternative. |
2. Advance Notice Period
Large and Whale withdrawals require the LP to submit a withdrawal intent before the actual withdrawal can be queued. This gives the protocol time to:
- Pre-position liquidity by initiating Yield Pool recalls before the withdrawal is due.
- Pause or reduce new yield deployments to ensure sufficient liquid capital is available.
- Alert Ops to monitor pool health during the withdrawal period.
- For Whale withdrawals: offer OTC coordination as an alternative (the LP withdraws off-protocol at a negotiated rate, avoiding pool impact entirely).
The notice period is enforced on-chain. The LP calls submitWithdrawalIntent(), which records the intent and starts the notice countdown. The LP can call executeWithdrawal() only after the notice period expires.
3. Tranche Execution
Large and Whale withdrawals are processed in tranches to spread the liquidity impact over time:
| Tier | Tranche Size | Tranche Schedule |
|---|---|---|
| Large ($50K–$200K) | Max $50K per tranche | One tranche every 12 hours until fully processed |
| Whale (> $200K) | Max $100K per tranche | One tranche per day until fully processed |
Each tranche goes through the standard queue gate checks. If the pool enters SLOW or PAUSED state during tranche execution, remaining tranches wait until conditions recover. The LP is notified of any delays.
4. OTC Coordination (Whale Alternative)
For Whale withdrawals (> $200K), the protocol offers an OTC coordination option. Instead of withdrawing through the pool (which impacts all LPs), the withdrawing LP works directly with Ops to execute the withdrawal off-protocol:
- LP signals intent to withdraw via OTC.
- Ops coordinates with external partners (Binance, Wintermute, OTC desks) to source replacement liquidity.
- LP receives their stablecoins from the external source; kTokens are burned; pool balance remains intact.
- Any cost differential (spread between pool rate and OTC rate) is negotiated between the LP and protocol.
OTC coordination is offered, not required. The LP can always choose the standard tranche path.
5. Early Withdrawal Penalty (Post-Launch Option)
An optional early withdrawal fee can be enabled post-launch to allow LPs to bypass the cooldown by paying a penalty. This creates a market-based mechanism: LPs who urgently need liquidity can get it, and the fee compensates remaining LPs for the dilution risk.
| Bypass Option | Fee | Distribution | Phase 1 Status |
|---|---|---|---|
| Bypass cooldown | 0.5% of withdrawal amount | 100% to the pool (benefits remaining LPs via Liquidity Index jump) | Disabled |
| Bypass queue (skip ahead during SLOW) | 1.0% of withdrawal amount | 50% to pool, 50% to protocol treasury | Disabled |
Early withdrawal penalties add complexity for LPs and may deter initial liquidity provision. At launch, the priority is attracting LPs with a simple, transparent model. The penalty mechanism can be introduced later if withdrawal pressure becomes problematic and the cooldown/queue system alone is insufficient.
Both options can be enabled via governance (updateWithdrawalConfig) if LP feedback indicates demand. The fee rates are configurable parameters.