Liquidity Pool
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Liquidity pools are places to store tokens (which we sometimes call liquidity) to make decentralized trades. These pools are created by users and decentralized apps (or Dapps, for short) who want to profit from their usage. To pool liquidity, the amounts a user supplies must be equally divided between two coins: the primary token and the second token.
When users deposit tokens into the liquidity pool, they receive HLP tokens (HexaFinity-Swap Liquidity Provider tokens). If users deposited $HEXA and $ETH into a pool, they would receive HEXA-ETH SLP tokens. These tokens represent a proportional share of the pooled assets, allowing users to reclaim their funds at any point. Every time another user uses the swap feature to trade $HEXA and ETH, there's a 0.2% fee. In addition, 26% of our platform trading fees are added to the Liquidity Pool of the swap pair they trade on.
The Classic Pool is designed for general-purpose trading and employs the constant product formula, expressed as x*y=k.
It supports various assets and maintains balanced reserves of 50%-50%. However, it is not optimized for stable assets; for trading pairs like USDC/USDT, the Stable Pool is more suitable.
Stable Pool:
The Stable Pool is tailored for stablecoin trading and uses a hybrid algorithm combining the constant product and constant sum formulas. When prices are pegged around 1:1, the pool is a continual sum AMM (x+y=k) to facilitate highly efficient trading.
In cases where prices deviate from the peg, it reverts to functioning as a constant product AMM (x*y=k). This pool is optimized for assets like USDC/USDT that are tightly pegged around 1:1. It is highly efficient when two tokens are pegged at 1:1 but less efficient for uncorrelated pairs like ETH/USDC.
Concentrated Pool:
The Concentrated Pool conceptually resembles the Stable Pool but supports dynamic pricing instead of a fixed 1:1 ratio.
It dynamically concentrates liquidity around the current market price, offering a tighter spread around this price. The Concentrated Pool is an upcoming feature.
Remember that providing liquidity is subject to impermanent loss and may carry certain risks. Ensure you know all the pros and cons of giving liquidity before taking action. You can learn more about impermanent loss by clicking.
