Deep dive: Withdrawal Pools

Liquidity Pools

Liquidity pool, a smart contract, is a fund of tokens. The liquidity providers deposit the tokens into the pool. Anyone holding the tokens can become a liquidity provider (LP). In exchange for providing the tokens, the LPs normally earn a fee. Now, when a trade executes on an AMM, the trade executes against the liquidity pool. This eliminates the need for an order book and for the buyer and seller to be present at that moment in time.

StableSwap pools

First introduced by Curve, the Stableswap is a hybrid algorithm. The Stableswap hybrid combines both Constant Product and Constant Sum models, and the following chart shows the Stableswap algorithm in relation to constant product and constant sum invariants.

Dynamic Pegs

The Constant Product formula does not update the price of the tokens in the pool with the market movement. The Stableswap formula motivates swaps around price ratio 1.0, well suited for stablecoins. Dynamic pegs are the next evolution of AMMs.
Dynamic pegs will bring the benefits of Stableswaps to cryptocurrency assets which aren’t pegged to another asset, like staking derivatives. By using an automatic price change mechanism, with a trusted oracle, the algorithm will move the price based on real-time profit margin calculations, to adjust for slippages. Thus, benefiting both the traders and the AMMs.

Dynamic Withdrawal Pools

Dynamic Withdrawal Pools are StableSwap pools with Dynamic Pegs.
Copy link
On this page
Liquidity Pools
StableSwap pools
Dynamic Pegs
Dynamic Withdrawal Pools