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What Is Liquid Swap
What is Liquid Swap?
Liquid Swap is a liquidity pool developed based on the AMM (Automatic Market Maker) principle. It consists of different liquidity pools, and each liquidity pool contains two digital tokens or fiat assets.
You can provide liquidity in the pools to become a liquidity provider and earn transaction fees and flexible interest.
Also, you can swap two digital tokens or fiat assets in the liquidity pools easily.
Note: Liquidity Swap supports API functionality, for more information, please visit Liquid Swap API Portal.
How many types of products does Liquid Swap support?
There are two types of Liquid Swap - Stable Investment and Innovative Investment.
- Stable: Developed with a hybrid constant function automatic market-making system model to realize the transaction and pricing between two stable tokens, and provide a low slippage trading experience. The prices of the two tokens in the pool are affected more by exchange rate/token price fluctuations, and the market-making income is more stable than the Innovative products.
- Innovative: Developed with a constant mean value automatic market-making system model to achieve transaction and pricing for two digital tokens or fiat currencies. The prices of the two tokens in the pool are affected by the exchange rate/token price fluctuations, and market-making returns fluctuate more greatly.
Before you start using Liquid Swap, here are some definitions you should know:
- Add: provide liquidity for the liquidity pools
- Redeem: remove your tokens from the liquidity pools
- Dual token pool: consists of two tokens
- Price (internal price): The swap price between the pair in the pool. The final price depends on the proportion of the pair in the liquidity pool and is calculated by a formula.
- Acquired share: the expected acquired share after adding liquidity.
- Pool share ratio: the acquired share to the total pool share.
- Total yield: The total rate of return is calculated based on all current interest and all trading fees paid yesterday.
- The current pool capacity: the composition of the pair in the current pool. When you add assets, you will also add them in proportion to the composition.
- ★★★ Share: After adding an asset to the liquidity pool, you will get a share, it is different from the token you added. The share is composed of two digital tokens or fiat currencies. The number of the two digital tokens or fiat will change in real-time based on the current pool capacity.
- Total yield: the latest reference rate of return for the trading pair.
- Share amount: the amount of token/fiat in the acquired share.
- Share value: the total value of the share acquired after adding assets.
- Share composition:
- Pool share ratio: the acquired share to the total pool share.
- Cost per share: According to the cost price per share calculated when you add it, priced in USD.
- Last day yield: includes the fee income and interest income received yesterday, excludes impermanent losses. Note: Deposit and then withdraw on the same day, the income generated by the withdrawal is not included.
- Market-making profit and loss (PnL ratio): Calculated based on the current share value minus the total cost price of the share, priced in USD. Market-making profit and loss include cost +trading fee income + interest income + impermanent loss. Market-making profits and losses are affected by multiple factors, including exchange rates, token price fluctuations, and impermanent losses, which can generate positive or negative returns.
How to calculate total yield?
- Total yield = (all current interest distributed yesterday + all trading fees of yesterday) / the end of yesterday's date (UTC+0 23:59:59) total pool value*365
- Interest rate of return = all current interest paid yesterday / total value of the pool at the end of yesterday * 365
- Trading fee rate of return = all trading fees paid yesterday / total pool value at the end of yesterday *365
How to calculate share value?
- Share value = The number of two tokens/fiats in the share composition * real-time exchange rates and denominated in USD.
- Example: User’s share value = 100 USDT + 50 DAI
Real-time exchange rate: 1 USDT = 1.005 USD
1 DAI = 1.01 USD
Share value = 100 USDT * 1.005 + 50 DAI * 1.01 = 151 USD
How to calculate last day yield?
- Last day yield = Last day yield per share * Last day share held by the user for a full day (calculated by the minimum share)
- The calculation instructions for the minimum share held by users for a full day:
- The user’s share at the end of the day before yesterday was 0, and the user’s minimum share of yesterday is 0.
- The user’s share at the end of the day before yesterday was 100. Then the user added 50 shares yesterday and did not withdraw until the end of yesterday, so the minimum share yesterday is still 100.
- The user's share at the end of the day before yesterday was 100. Then the user added 50 shares yesterday and redeemed 80 shares before the end of the period, so the minimum share at the end of yesterday is 70.
How to calculate the profit and loss of market-making (PnL ratio)?
- Market-making PnL = share value - (cost price per share * number of shares)
- PnL ratio (%) = market-making profit and loss/share value
Is Liquid Swap a guaranteed investment?
Possible losses may be caused by:
- Fluctuations in token prices or fiat exchange rates, which will affect the value of shares. To further understand the risks, please refer to Impermanent Loss Explained.
- When a large amount of a single token is added or redeemed, the value of the share will be affected and lost due to excessive slippage.
- Frequently adding or redeeming tokens.
When do I need to pay transaction fees when using Liquid Swap?
- Making a swap in [Liquid Swap] - [Swap]
- Adding a single token on [Liquid Swap] - [Liquidity] - [Add]
- Redeeming a single token on [Liquidity Swap] → [Liquidity] - [Redeem]
Adding or Redeeming Liquidity
When you add liquidity, you can:
- Choose dual tokens to add. The system will automatically display the amount of tokens to add according to the current pool capacity.
- Choose a single token to add. The system will swap the token you added into the other token of your chosen pair based on the current share composition ratio in the pool. Transaction fees will incur during the conversion, and large transactions may also cause higher slippage and loss.
When you remove liquidity, you can:
- Choose dual tokens to redeem. The system will allocate the two tokens back to your spot account according to the pool share and share composition.
- Choose a single token to redeem. The system will swap the token you choose to redeem into the other token based on the current share composition ratio in the pool. Transaction fees will incur during the swap, and large transactions may also cause higher slippage and loss. When the slippage is too high, the system will send an alert on the page.
Slippage and the loss of slippage:
Slippage refers to the spreads between the actual trading price and the price while placing the order.
You can set the slippage tolerance of transactions on the [Liquid Swap] - [Swap] page. You can only swap when the slippage is within the set range.
When a single token is added or redeemed in large amounts, slippage may also incur and affect the value of the share. In this case, the system will send you an alert before confirming the swap.