Liquidity pool questions

[zamrokk]

Q1 : It is said : "By adding liquidity you'll earn 0.05% of all trades on this pair proportional to your share of the pool."
How can I get this reward ?
Is it a global reward of the pool ? But when i convert back the LQ tokens to XTZ and CTez, is it including the reward too or not ? How can I see the formula of it to verify it ?

Q2 : When I get some LQ tokens from the Liquidity pool, what happens to my XTZ on it and its delegation ? Who get my delegation rewards out of it ? As XTZ are deflationists, it means that user is losing some inflation value here

[DeFiPrince]

1. The reward is automatically added to the pool whenever a swap happens, so the returns get compounded for the Liquidity Providers. So, Whenever someone removes liquidity, they are also getting the trading fees accumulated over the period of time.

[DeFiPrince]

2. As the per the economic model of the ctez, this AMM is not delegated to any baker. There are other Automated Market Makers on Plenty (stable Swap) , Quipuswap which offer baking rewards and have a higher percentage of fee on trades executed.

[zamrokk]

1. Here the allocation is nominal = # LP tokens. If the pool grows, how fees are added to the pool ? fees are XTZ, not LP tokens. Then, if the allocation was in % of fees, the I can understand how the withdraw can happen, but in our case, the allocation is on nominal, I have not seen that this can be increased by the contract , is it the case ?

[zamrokk]

If I simply :

• I have x LP token over y total of LP token. This formula x / y gives me my % of the LP fund.
• Some fees (in XTZ or CTEZ) have to be sent to the LP fund in provinding a Swap service for XTZ/Ctez pair
• On a withdraw of LP token, the amount of currency (XTZ or Ctez depending how you take the fees) should have increased
• How is calculated the amount of XTZ or Ctez at withdraw time == i.e what is the valuation of LP token ?

[DeFiPrince]

1. Here the allocation is nominal = # LP tokens. If the pool grows, how fees are added to the pool ? fees are XTZ, not LP tokens. Then, if the allocation was in % of fees, the I can understand how the withdraw can happen, but in our case, the allocation is on nominal, I have not seen that this can be increased by the contract , is it the case ?

Whenever a swap occurs, the tokenPool and cashPool values change, depending upon the direction of swap, trading fee is calculated and added to the respective variable.

Let's take an example:

Automated Market Liquidity ( 1000 Tez and 1000 ctez) and you are the sole liquidity provider with 2000 Lp Tokens of the Pool.
Assuming the price of 1 tez = 1 ctez ( which was at the start of economic model)

If someone swapped 1 tez to ctez at that time.

Trading Fee = 0.05/100 * 1 tez = 500 mutez ( 0.000050 tez )

Since, the user is swapping around 0.1 % of liquidity, there are facing slippage in the trade.
After the swap is executed

In the smart contract, tokenPool value is the ctez balance of the Automated Market Maker and cashPool is the xtz balance.
cashPool = 1000 tez + 1 tez = 1001 tez
tokenPool = 999.001498 ctez

Upon Remove Liquidity, following calculation would be executed:

xtz_amount = (user_lp_balance * cashPool ) / total_lp_supply = 1001 tez
ctez_amount = (user_lp_balance * tokenPool ) / total_lp_supply = 999.001498 ctez

Note - This is an extremely basic example to explain the working of the AMM. There are other things to consider while providing liquidity to the pairs.

[zamrokk]

Are the fees always taken in XTZ ? Does it mean that the cashPool will always grow ?

[DeFiPrince]

The fees are taken in ctez and xtz, depending upon the input of the swap. If the swap is from ctez to tez, then fee is taken in the form of ctez and vice-versa.

[zamrokk]

Thanks Interesting 🤔 Le mar. 21 juin 2022 à 17:12, Ryoma Echizen ***@***.***> a écrit :

…

The fees are taken in ctez and xtz, depending upon the input of the swap. If the swap is from ctez to tez, then fee is taken in the form of ctez and vice-versa. — Reply to this email directly, view it on GitHub <#155 (comment)>, or unsubscribe <https://github.com/notifications/unsubscribe-auth/AATLHMBSYYLK3OKN4HZQKI3VQHLUBANCNFSM5YGS2D6Q> . You are receiving this because you authored the thread.Message ID: ***@***.***>