Liquidity Pools

A summary of how the Market Maker model functions

In order for the AMM to function, Spartan Protocol allows users to provide liquidity and earn rewards for actions that are undertaken in a specified Liquidity Pool.

Rewards are allocated based on token swaps taking place in the pools. this happens both directly (ie. Bob swaps 1 BNB for SPARTA) and indirectly (ie. Joe adds only 1 BNB to the pool; no SPARTA with it)

Token Swaps result in a slip fee being injected into the pool where the activity took place, based on the AMM model defined in the Spartan Protocol whitepaper. This model ensures that during periods of high liquidity and exchange, fees increase and at periods of low liquidity, fees are low.

Asymmetric Liquidity Add

An asymmetric liquidity-add is when someone adds an amount of one or two assets to a pool that does not match the ratio of assets held within that pool. This results in the ratio of the pool slipping away from the outside market which will incentivize arbitrageurs (or users looking for a cheap deal on the respective token) to perform revenue-generating swap transactions.

Taking this into more detail, please see the screenshot below of a BNB-SPARTA Liquidity Pool.

Example of the existing Liquidity Pool

The existing ratio for assets as displayed here is calculated on the ratio ~ 1,504,701 SPARTA / 6,243 BNB, effectively 241 SPARTA per BNB.

If a user decided to asymmetrically stake 1000 BNB in a single transaction, the pool will increase to a size of 7,243 BNB and 1,504,701 SPARTA, adjusting the ratio of all existing Liquidity Providers.

This will effectively increase the internally-derived value of SPARTA and create a discount on BNB vs the previous state. Swappers can now come in and take advantage of their above-market value SPARTA by buying BNB at a discount. The new ratio would be 207.74 SPARTA per BNB.

Effect on existing LP

Existing liquidity providers will see their potential LP remove totals change as a result. If an existing holder had 10% of the pool, before the previous change their liquidity-removal would have credited them 624.3 BNB and 150,470.1 SPARTA.

After the additional BNB is added to the pool, and the pool has expanded, their weight in the pool may have reduced to ~9% of the pool, meaning that they have the ability to now remove 651.87 BNB and 135,423 SPARTA.

Note - this is a basic example and does not include the calculation of slippage fees etc