Liquidity Pools
You can add liquidity to two different pools for each pair of tokens. These are the stable and volatile pools.
When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and a share of the fees.
Providing liquidity gives you a reward in the form of trading fees when people use your liquidity pool.
Whenever someone trades on WhaleSwap, the trader pays a fee, of which a percentage is added to the Liquidity Pool of the swap pair they traded on. Stable pools take a 0.04% fee and volatile pools take a 0.25% fee, of which 0.02% and 0.2% (respectively) are added to the Liquidity Pool of the swap pair they traded on.
For example:
- There are 10 LP tokens in a volatile pool representing 10 ETH and 10 BNB tokens.
- 1 LP token = 1 ETH + 1 BNB.
- Someone trades 10 ETH for 10 BNB.
- Someone else trades 10 BNB for 10 ETH.
- The ETH/BNB liquidity pool now has 10.02 ETH and 10.02 BNB.
- Each LP token is now worth 1.0002 ETH + 1.0002 BNB.
To make providing liquidity even more profitable, soon you will be able to put the LP tokens to work farming yield while still earning your fees.
As mentioned above, there are two types of pools for each pair. The total fee breakdown is shown in the following table:
Pool Type | LP Fee | Token Fee | Protocol Fee | Total Fee |
|---|---|---|---|---|
Volatile | 0.2% | 0.04% | 0.01% | 0.25% |
Stable | 0.03% | - | 0.01% | 0.04% |
When providing liquidity you can choose which pool to use, both pools can also be used in parallel but the pool with the best price will always be preferred, assuming both pools are at market price the stable pool will generally be preferred due to the low fees and low slippage.
tl;dr; If both assets in the pool are likely to stay at the same price as each other, use a stable pool. Otherwise, use a volatile pool. For example:
- ETH/BNB = Volatile
- ETH/WETH = Stable
- USDT/USDC = Stable
Volatile pools are intended for pairs without high correlation. For example, ETH and BNB.
These pools are riskier to provide liquidity for, due to impermanent loss. The fees are higher to offset that risk.
Pricing for volatile pools is handled with the traditional xy=k price curve as popularized by Uniswap.
On the contrary stable pools are intended for pairs with high correlation, such as ETH and WETH or two stablecoins such as USDT and USDC.
Stable pools also have much lower fees because liquidity providers require lower incentives since the risk of impermanent loss is so low and trades tend to be large.
The biggest bonus to stable pairs is the price curve since the price is unlikely to deviate between the two assets. In this case, we are using a modified stableswap algorithm to achieve this.
The biggest difference between each pool type is in the slippage, so we will run through a quick scenario.
Let's assume we have both a stable pool and a volatile pool for the USDT/USDC pair, each with $10,000 in each asset.
Now, we trade 1000 USDT for USDC. Due to slippage, we end up with 907.02 USDC, that's 9.75% slippage for just trading between two stablecoins!
For the stable pool, if we do the same trade, we end up with 999.10 USDC which is only 0.09% slippage!
See how much difference it makes? For lower liquidity pools, swaps for optimal routing or large trades it can make huge differences, saving you more money that would just be eaten up by arbitrage.
Last modified 9mo ago