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 decentralized and permissionless way. These pools are created by users and decentralized 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.

PheasantSwap's liquidity pools allow anyone to provide liquidity to them; when they do so, they will receive PS-LPS tokens (PheasantSwap Liquidity Provider tokens). If a user deposited $PST and a base token into a pool, they would receive PST-base PS-LPS tokens. These tokens represent a proportional share of the pooled assets, allowing a user to reclaim their funds at any point. Every time another user uses the pool to trade between $PST and the base token, a 0.3% fee is taken on the trade. 0.25% of that trade goes back to the LP pool.

The value of the PS-LPS tokens, which represent the shares of the total liquidity each pool, is updated with each trade to add their value relative to the tokens the pool uses to trade. If previously there were 100 PS-LPS tokens representing 100 $base and 100 $PST, each token would be worth 1 $base & 1 $PST (note in this example, $base and $PST are the same relative value). If a user were then to trade 10 $base for 10 $PST in that pool, and another user were to trade 10 $PST for 10 $base, then there would now be 100.025 $base and 100.025 $PST. This means each PS-LPS token would be worth 1.0025 $base and 1.00025 $PST now when it is withdrawn. PheasantSwap provides a decentralized and permissionless platform for users to trade their $PST tokens and other tokens on the ENULS network, while also providing liquidity providers with an opportunity to earn fees on trades made on the platform.