Understanding Jupiter Liquidity Provider (JLP)

6 min readJan 2, 2025

JLP is probably not the most exciting thing for the degens. It is more of a hidden gem which is not talked about often on Crypto Twitter.

Now before diving deep into what is JLP, let’s be clear that JUP and JLP are 2 separate tokens. JUP is the governance token which powers the Jupiter DAO whereas JLP powers the leverage trading on Jupiter Perps.

Role of JLP in Jupiter’s Ecosystem

Jupiter has many diverse products in its ecosystem. One of the key offerings is Perps.

Say you want to go 2x Long on Solana. If you have 100 SOL, you can open a position for 200 SOL. Now to open this leveraged position you are borrowing the extra funds from somewhere. That somewhere is a liquidity pool. In this case, it is Jupiter's Liquidity Pool.

Liquidity providers supply the traders with essential liquidity for perps trading.

When Traders borrow tokens from the pool to open leverage positions they pay a fee.
And for providing liquidity the liquidity providers get a portion of the generated fees in return.

The more the traders borrow from the pool the more fees they pay and ultimately more fees the liquidity providers earn.

Anyone can become a Liquidity Provider

It is quite easy for anyone to add their assets to the Liquidity Pool. You simply have to buy JLP tokens. The JLP token represents your share of the pool.

JLP is a weighted basket of assets. The underlying tokens are SOL, ETH, wBTC, USDC, and USDT. When you buy JLP you are automatically getting exposure to the underlying tokens in their specified weights.

JLP is the user-friendly way to be a Liquidity Provider

LPs do not need to actively stake or harvest yields. APR earnings are embedded within the JLP token itself and they accumulate automatically.
It is an SPL token — easily tradable like any other tokens in the Solana ecosystem

Whenever you buy JLP you increase the TVL, which increases the liquidity available for perps trading.

Rewards for providing Liquidity

Jupiter redistributes 75% of the fees generated from perps to the JLP pool. The generated fees are redistributed hourly and the APY is determined by this fee. (APY calculation doesn’t factor in the assets appreciation or traders PnL.) The APY changes each week.

If you want to remove liquidity, just sell your JLP using the Jupiter swap.

Understanding JLP’s Value Drivers

While the APY is determined only based on the fees, there are a few factors from which JLP derives its value:

The current value of the underlying tokens (For example, SOL appreciating massively will lead to an increase in JLP value)
Trader’s profit and loss
75% of the generated fees (Position fees — opening and closing fees, borrowing fees — dynamically adjusted hourly, trading fees)

The utilization of the assets in the JLP changes depending on how traders favour the assets.

JLP Market Performance

This chart looks nothing like the other tokens. JLP has been steadily rising.

Thanks to all the underlying tokens performing well and the fees getting added to the value, JLP has outperformed all of them.

Why such a price movement of JLP?

There is some stability in JLP when compared to other tokens.

JLP is a mix of blue chip tokens and stablecoins. Because it has stablecoins, there is less drastic movement than individual tokens and volatility is reduced.

So for both bull and bear markets, this token has fewer fluctuations.

While this may give you some peace of mind, you may lose out on the gains of individual tokens in a bull run. The price has appreciated the manifolds of the underlying token but JLP will underperform.

But it may drop when the price of SOL BTC ETH drops drastically.

JLP in Action: Trading Scenarios

Scenario 1 — When a trader opens a long position and profits.

The JLP pool loses some quantity of the token being traded. but the pool’s USD value stays relatively stable. This is because the remaining tokens in the pool have appreciated.

Example:

Let’s say the JLP pool starts with:

100 SOL (priced at $100 each)
$10,000 USDC

Total pool value = $20,000

A trader opens a 2x leveraged long position on SOL:

Deposits: 10 SOL as collateral ($1,000)
Borrows: Additional 10 SOL from the pool ($1,000) for 2x leverage
Total position: 20 SOL ($2,000)

Now let’s say SOL price rises to $150 (+50%)

The trader’s position:

Initial position: 20 SOL × $100 = $2,000
Current position: 20 SOL × $150 = $3,000

Profit: $1,000 (before fees)

When the trader closes the position:

Returns borrowed 10 SOL to the pool
Takes their original 10 SOL
Gets their $1,000 profit in SOL (about 6.67 SOL at $150 price)

Final JLP pool state:

SOL remaining: 93.33 SOL (100–6.67 profit paid)
Value at $150 each = $14,000
Plus $10,000 USDC

New total pool value = $24,000

The pool lost SOL quantity paid as profit. but it hasn't experienced a loss in the USD value as SOL value appreciated. The pool would have also earned the fees.

Scenario 2—When a trader opens a short position and profits.

Starting JLP pool state:

100 SOL (priced at $100 each = $10,000)
$10,000 USDC

Total pool value = $20,000

A trader opens a 2x leveraged short position on SOL:

Deposits: $1,000 USDC as collateral
Borrows: 20 SOL from the pool ($2,000 worth) for 2x leverage
Sells borrowed SOL immediately for $2,000 USDC

Now let’s say SOL price drops to $50 (-50%)

The trader’s position:

Borrowed: 20 SOL (initially worth $2,000)
The current cost to repay: 20 SOL × $50 = $1,000

Profit: $1,000 (difference between borrowed value and repayment cost, before fees)

When the trader closes the position:

Uses $1,000 USDC to buy 20 SOL at new price
Returns borrowed 20 SOL to pool
Keeps $1,000 USDC profit
Gets back their $1,000 USDC collateral

Final JLP pool state:

SOL: Still 100 SOL (but now worth only $50 each = $5,000)
USDC: $9,000 ($10,000 — $1,000 paid as profit)

New total pool value = $14,000

Key differences from long positions:

Pool maintained the same SOL quantity but lost USDC
Total USD value decreased because:

SOL value depreciated
USDC was paid out as a profit

3. Pool still earned fees from:

Opening and closing position, Hourly borrow fees, any price impact fees

How does JLP manage Risk?

The pool maintains a target weight for each asset in the JLP pool.

Weights are managed through dynamic fees. If tokens deviate too far from their targets, the system adjusts fees to encourage rebalancing. For example, if USDC’s current weightage exceeds its target, the system automatically adjusts fees to discourage further USDC deposits and encourage withdrawals.

Higher fees for actions that push away from target weightage
Lower fees for actions that move toward target weightage

The maximum deviation allowed is 20% from the target weight.

For example, if USDC’s target is 26% then the acceptable range is 20.8% (-20%) and 31.2% (+20%)

Above 31.2%: USDC deposits not allowed
Below 20.8%: USDC withdrawals not allowed

To Sum it up

A. JLP plays an important role in Jupiter ecosystem. The perps trading is smooth thanks to sufficient liquidity for traders.

The basic flow is:

Traders borrow tokens from the JLP pool for leverage
They pay a borrow fee for the borrowed tokens
These fees go to compensate the liquidity providers

B. JLP offers a simple and user-friendly way to become a liquidity provider while earning passive rewards through trading fees as well as getting gains from the appreciation of the token value

C. As it is a mix of blue-chip assets and stablecoins — it offers reduced volatility and steady value appreciation.

For any feedback or suggestion please reach out to me @its0xRay on X or Discord. If you found this essay helpful, do consider sharing it with your friends who may be interested in exploring the Jupiverse.