LogoLogo
  • Overview
    • šŸŠā€ā™‚ļøPoolside
    • 🌊Core Concepts
    • šŸ”„AMM
      • šŸ”„Stable Pools
      • šŸ”„Volatile Pools
    • šŸŽ‰Party & Points
  • Guide
    • šŸ’°Liquidity Providers
      • šŸ‘™Wrapping Tokens
      • šŸ–ļøJoining Party
    • šŸ™‹ā€ā™‚ļøSwappers
  • PARTY Token
    • šŸ–ļøPARTY Token & Tokenomics
  • Resources
    • šŸ”’Security
    • āœļøContracts
    • šŸ¤“FAQ
    • šŸ“–Glossary
    • 🌐Poolside
    • 🐦X (Formerly Twitter)
    • āœ‰ļøSubstack
    • šŸ«‚Discord
    • šŸ–„ļøGithub
Powered by GitBook
On this page
  • Adding Liquidity
  • Removing Liquidity
  • Initialization of a Pool

Was this helpful?

  1. Guide

Liquidity Providers

PreviousParty & PointsNextWrapping Tokens

Last updated 10 months ago

Was this helpful?

Liquidity providers supply liquidity to a pool for traders to swap against. In return for supplying liquidity, LPs receive swap fees from trades. The liquidity that is provided to a pool is represented by liquidity tokens. These tokens represent a proportional share of the liquidity pool and reservoir(s). The liquidity in a reservoir does not earn fees but can be reintegrated into the liquidity pool by LPs. This reintegration or balancing of a pool is done by adding single-sided liquidity. The protocol places constraints on this process to protect LPs further.

Adding Liquidity

LPs can add liquidity to an existing pool in two different ways:

  1. Double-Sided: Depositing liquidity for both assets of the token pair at a proportional rate.

  2. Single-Sided: Depositing liquidity for the asset with less liquidity, further balancing out the pool.

Let ā€˜s’ represent the number of liquidity tokens, and ā€˜z’ represent the total number of tokens in the pool:

sāˆ’minted/sāˆ’starting=zāˆ’deposited/zāˆ’startings_-minted/s_-starting=z_-deposited/z_-startingsāˆ’ā€‹minted/sāˆ’ā€‹starting=zāˆ’ā€‹deposited/zāˆ’ā€‹starting

LPs will always be able to deposit an equivalent amount of Token X and Y. When one reservoir, i.e. Token X, is partially filled, LPs can mint liquidity tokens by depositing Token Y to balance the pool.

Removing Liquidity

There are two types of redemption:

  1. LPs can withdraw liquidity and redeem (burn liquidity tokens) for a proportional share of the pool and reservoir

  2. LPs can withdraw from a single-asset reservoir up to the total number of tokens in the reservoir.

Option #1 will always be available to LPs, resulting in an equivalent withdrawal of Token X and Token Y. If one reservoir is partially filled, i.e. Token X, LPs can redeem liquidity tokens for just Token X.

If you deposit single-asset liquidity, this does not mean you can redeem for a single asset.

Initialization of a Pool

The creation of a pool determines the initial price of an asset pair and its resulting swap ratio. The initializer receives liquidity tokens for creating the pool. A larger amount of liquidity deposited will result in more liquidity tokens for the initializer. Increased liquidity will also lead to less slippage and a more stable pool.

šŸ’°