Liquidity Pools

What Are Liquidity Pools?​

Liquidity Pools are a place to pool tokens (otherwise known as liquidity) so that users can use them to make trades in a decentralised and permissionless way.

These pools are created by users and decentralised apps (or Dapps, for short) who want to profit from their usage. To pool liquidity, the amounts a user supplies must be equally divided between two coins: the primary token (sometimes called the quote token) and the base token (usually ETH or a stable coin).

ParaSwaps liquidity pools allow anyone to provide liquidity to them; when they do so, they will receive PLP tokens (ParaSwap Liquidity Provider tokens). If a user deposited $Paradox and $ETH into a pool, they would receive Paradox-ETH PLP tokens. These tokens represent a proportional share of the pooled assets, allowing users to reclaim their funds at any point.

Every time another user uses the pool to trade between $Paradox and $ETH, a 0.2% fee is taken on the trade. 0.15% of that trade goes back to the LP pool where the swap took place.

The value of the PLP tokens, which represent the shares of the total liquidity of each pool, is updated with each trade to add their value relative to the tokens the pool uses to trade.