Introduction to Liquidity Pools & Emissions
With the rise of decentralized finance and the following need for liquidity, the concept of liquidity pools came into fruition. At a high level, liquidity pools are a stockpile of assets locked in a smart contract created to facilitate transactions. On Swim, users can access stablecoin liquidity across our eight supported chains by tapping into Swim’s native asset pools.
From the deployment of liquidity pools in DeFi came a need to incentivize players to participate in AMM (automated market maker) programs, of which a key component is emissions. In this article, we’ll go over the key components of Swim’s liquidity pool emissions, which involve trading fees and future token emissions.
How does it all work?
We’ll take Swim’s signature hexapool as an example, but note that stableswap metapools are similar and can be used interchangeably here.
When you provide liquidity to Swim’s hexapool (thank you!), you receive LP tokens in return, which represents your share of the liquidity pool, consisting of your deposit into the pool as well as the rewards accrued.
In this case, the LP token is $swimUSD and represents your deposit of any of the six supported stablecoins in the hexapool as well as the rewards you have earned. There is no need to claim your rewards. Instead, $swimUSD acts as a share of the total pool, which accumulates fees from each swap involving the hexapool.
As this accumulates, your $swimUSD (i.e. your share of the pool) enables you to withdraw more of the underlying tokens (i.e. the six supported stablecoins) as more fees are incurred. You can withdraw your $swimUSD at any time for any of our supported stablecoins and stop accumulating rewards from the pool.
So how much value have you accrued so far by providing liquidity?
The current virtual price (as of date of publication) of the hexapool LP token, $swimUSD, is $1.004. What does this mean exactly?
A user who joined the hexapool on day 1 (March 9th) would have received 40bps of accrued value to date, which is an annualized return of 1%, purely from the 3bps earnt from every trade going through the hexapool, assuming constituents are at parity.
The PnL for the LP holder here is calculated from total volume traded * 3bps, assuming no imbalance in the pool, adds or removes, distributed to the pool evenly.
If you added and then withdrew evenly (across all 6 stablecoins) into or from a completely balanced hexapool, then you would experience this exact growth in the value of your LP token. Any imbalance in the pool at any point can adjust the calculation slightly, which can mean that your exact return can be slightly different from the change in virtual price of $swimUSD.
What about the other pools?
If you are a hexapool LP (i.e. $swimUSD) holder that then added liquidity into the metapool, your accrued rewards would stack. This would include the 3bps trading fees from the hexapool as well as the 3bps trading fees from the metapool.
All the stableswap pools accrue 3bps of trading fees, in line with industry standard.
We currently have one non-stableswap pool, with plans on adding more in the near future. The SOL GST <> BNB GST pool uses a constant product curve, which means that prices can deviate far from 1:1. This is because the two tokens are not fungible across the chains.
For this pool, the trading fees accumulated are slightly higher, set at 25bps, which is also in line with industry standard. This is due to the potential for a larger deviation from the $GST prices at the time you added liquidity (impermanent loss), so the larger trading fee is there to offset this.
As part of the UX improvements that are coming, we’ll be rolling out additional information on our pools page, where you will be able to see how much value you have accrued by providing liquidity in Swim’s liquidity pools.
Once we have our IDO, which has been delayed due to market conditions, more details about emissions will be announced, which will loosely follow Curve's emission and Sushi's treasury model. We’re super excited for what the future holds.
From the Swim team, thank you for continuing to provide liquidity in our pools. You are helping us in achieving our dream: the pursuit of a multi-chain future with decentralized, seamless swapping for all.
As ever, if you have any questions, please feel free to connect with us on Discord or our socials and we’d be happy to help!
P.S. If you read the IDO blog closely, you can find some information on future emission plans once $SWIM is released. Don’t worry, there are a plethora of details yet to be released!
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