Ah I think I know where your misunderstanding is coming from. Provide is not based directly on liquidity providing. It’s a kind of in-between.
Generally for pools you need to have both sides of the liquidity pairing to be provided at the same time. Overtime that creates what’s called devergence loss (aka impermanent loss). Because when one asset is bought from the pool your portion of the share to the pool will be different. Effectively you lose a little bit over time unless the prices go back down the rate you provided the pair in. This is a good video on it.
Provide works a bit differently. On the incognito network all pairs are matched with PRV on their respective pools. Provide allows people to not need to buy PRV (with high slippage) to still provide liquidity into the pools. It’s a good middle ground. Rewards from any liquidity being provided into pools are handled by a PRV reserve. Projects like these live and die on the liquidity. PRV’s value is directly tied to the utility of this network. It makes sense why the incognito team wants to upfront PRV to make it much easier for people to provide liquidity in the network. That increases the price of PRV which makes it less of a burden overall and increases their own PRV value.
When a pair is in the pool it much be remained in the pool. Lending it out or doing a secondary restaking isn’t how these systems work. You can’t borrow something which is put in a pool. Let alone where would the reward come from? The reserve?
You can’t double dip or think that funds in pools are unused funds. The funds in the pool provide direct liquidity to make trades. Borrowing it makes the proportion in the pool incorrect and thus the pool value is incorrect.
This is a blockchain project. PRV is chained to the blockchain. That is how we can be certain no double spends happen and exact supply can be verified.
A fractional reserve system cannot work with automated market making because the automated portion of that assumes all funds in the pool are well in the pool. There is a whole lot of things just wrong with your assumptions about how these systems work.
Please watch this to learn how these pooling systems work.