A guide to pooling and providing liquidity on a permissionless DEX
TVL stands for Total Value Locked, or the overall size of the pool denominated in USD.
Pooling tokens means providing liquidity for other users who want to swap between a pair of tokens. For example, a user who wants to swap $STX tokens for $STSW tokens will utilize a STX-STSW token token to make the swap possible. The exchange rate for the swap would be determined by the ratios of the tokens within the pool.
Each swap transaction takes a 0.3% transaction fee from the swapping user. 0.25% of this 0.3% transaction fees is distributed proportionally to the liquidity providers of this pool. So, by pooling tokens and providing liquidity, you can passively earn additional tokens, especially for pools and tokens pairs with high amounts of trading volumes.
All users who provide liquidity on Stackswap pools will receive LP (liquidity provision) tokens as a type of receipt that is used as proof that the user is providing liquidity in a pool and owns a certain percentage of the pool’s liquidity. When the liquidity is withdrawn by the user, the LP tokens are then burned in exchange.
“Your LP Balance” is the total amount of LP tokens in your wallet that are not yet earning rewards in Farms. See the guide for Farming your LP tokens to learn more.
Select “Add Liquidity” to continue to the next screen.
The liquidity you can add is set by the existing ratio of tokens in the pool. Sometimes, users may need to swap for an additional supply of tokens in order to meet the requirements of a certain pool’s ratio.
The interface also provides an option to calculate the maximum amount of a token to provide to a pool’s liquidity. Keep in mind that if this token is $STX, you will still require a reserve amount of $STX for transaction fees.
Creating a pool is just as easy as adding liquidity to an existing pool. Any user who creates a new pool will also set the price and ratio between the two tokens in the pool.
Select the tokens you wish to create a pool for. Much like providing liquidity in the earlier parts of this article, you must have a supply of each token you are creating the new pool with.
Provide the supply of each token, which will create the ratio and price within the pool. Select “Create New Pool” to confirm final details on the Hiro Wallet extension pop-up.