Liquidity

Liquidity Pools

Boomswap liquidity pools are a collection of tokens on the Boom blockchain that are locked in a smart contract and used for trading between tokens. Liquidity pools are intended to replace traditional order books by directly matching buyers and sellers. They are the backbone of DeFi platforms, bringing together people eager to supply their assets and people looking to trade or borrow those assets.

Participants contribute to a shared pool of liquidity by depositing tokens into a liquidity pool, which ensures the continued availability of assets for trading, lending, and other financial operations.

Liquidity Provision

A Boomswap liquidity pool is the trading arena for a pair of tokenised fiat currencies. Anyone can create a pool and once created, the balance of each token is zero. In order for the pool to begin facilitating trades, someone must seed it with an initial deposit of each token. This first liquidity provider is the one who sets the initial price of the pool.

Whenever liquidity is deposited into a pool, unique tokens known as Boomswap LP Tokens (LP Tokens) are minted and sent to the LP’s wallet. These tokens represent a given LP’s contribution to a pool. The proportion of the pool's liquidity provided determines the number of liquidity tokens the provider receives. If the provider is minting a new pool, the number of liquidity tokens they will receive will equal √(x * y), where x and y represent the amount of each token provided. Whenever a trade occurs, a 1.60% fee is charged to the transaction sender. This fee is distributed pro-rata to all LPs in the pool upon completion of the trade.

To retrieve the underlying liquidity, plus any fees accrued, LPs must redeem their LP Tokens for the underlying assets and earned fees when removing liquidity from a pool.

As LP tokens are themselves tradable assets, liquidity providers may sell, transfer, or otherwise use their LP tokens in any way they see fit.

What fees do Liquidity Providers (LP) earn on Boomswap?

Liquidity providers earn a 1.6% fee on all swaps that utilise their pool as a reward for supplying their tokens to inject liquidity to pools.

This fee is deducted from the input token and is paid proportionally to all LPs that have an active liquidity position.

Liquidity provider fees are paid entirely to LPs and BoomDAO does not receive any of these fees.

What other fees are deducted from trades?

In addition to LP fees, a 0.3% protocol fees is retained. So, in total, all swaps incur a 1.60% liquidity provider fees and a 0.30% protocol fees that goes to BoomDAO.

Are fees Auto-Compounded into Pools as they are Earned?

Yes, earned LP fees are auto-compounded into the pool, meaning that with every swap, the fees go back into the pool making it bigger.

Who can be a Liquidity Provider on Boomswap?

Anyone can be a liquidity provider as long as they have the base currency, BMC and an equivalent amount of another asset.

How do I Withdraw my Liquidity Position?

Go to pools, connect your wallet and click withdraw liquidity on the Boomswap app