Liquidity Pools
A simple introduction on liquidity pools and how it's implemented on DotSwap.
DotSwap's Automated Market Maker (AMM) is based on the constant product model, which ensures that the product of the pool's two tokens (k value) remains constant before and after a trade. The exchange rate changes dynamically as liquidity is added or removed.
Creating a Liquidity Pool
Users of DotSwap can create liquidity pools if they have the selected BTC and BRC20 funds deposited on DotSwap.
When a user creates a liquidity pool, they deposit two tokens (A and B) to establish the initial k value. In return, they receive LP tokens representing their share of the pool (100% initially).
DotSwap guarantees 100% reserves for all the BTC-BRC20 liquidity pools.
DotSwap BTC Reserve (Public Since September 11th, 2023): https://www.blockchain.com/explorer/addresses/btc/bc1pumvwffjs29xr8rhhdv09h37x22pzj7wmg5nqtg87hcpw0xmyxmuscrp9lw
Adding Liquidity
Users can add liquidity by depositing tokens A and B according to the current pool ratio. The actual amount deposited may differ from the submitted amount, as the system processes the transaction based on the latest pool ratio. The user receives additional LP tokens based on their contribution, and their ownership percentage in the pool is adjusted accordingly.
Removing Liquidity
To remove liquidity, users can redeem their LP tokens for a percentage of tokens A and B from the pool. The remaining LP tokens and their ownership percentage in the pool are adjusted accordingly.
DotSwap's AMM enables users to easily create, add to, and remove liquidity from pools while maintaining a constant product model for efficient and dynamic trading.
Initial Liquidity Pools Created by DotSwap
There are 2 liquidity pools created by DotSwap for these 2 tokens:
$DSWP — The governance BRC20 token of DotSwap. Read more >
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