💰Liquidity Pools

What is a liquidity pool?

A liquidity pool is a collection of tokens secured within a smart contract, facilitating asset trading on decentralized exchanges (DEX) such as XEI.

In conventional finance, liquidity is managed through a central limit order book, where buyers and sellers place orders organized by price and demand.

The XEI Protocol employs a unique strategy, utilizing an Automated Market Maker (AMM) instead of the traditional order book system. This involves a liquidity pool of two assets, with the AMM determining their prices.

Liquidity providers (LPs) supply these tokens and, in return, receive LP tokens as a reward for their contribution.

XEI V3

When you contribute your tokens to a Liquidity Pool, you will receive Liquidity Provider NFT tokens and gain a share of the fees.

In V3, liquidity providers gain greater control over the price range at which they deploy their liquidity. Adding your token to a Liquidity Pool in V3 will result in the creation of a unique non-fungible liquidity position with specific settings.

As such, liquidity positions in V3 are represented by NFTs. These NFTs are transferable and signify ownership of the underlying assets and the trading fees they accumulate.

Unlike before, trading fees in V3 will not be automatically compounded within the position. You will need to manually claim them on each position's detail page.

You can withdraw your funds at any time by removing your liquidity.

Active liquidity and price ranges

In V3, liquidity providers have the option to set their positions to supply liquidity only within a specified price range. If the trading price shifts outside of this range, the position will hold only one type of token from the pair and will be rendered inactive.

Inactive liquidity positions will not engage in trading or accumulate any trading fees.