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.
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