Here you're bound to find the liquidity solutions essential to your requirements.
Liquidity, broadly speaking, refers to assets or a digital pile of tokens locked in smart contracts, and it can also be interpreted as the ease with which tokens can be swapped to other tokens or to fiat-pegged cryptocurrencies. Ergo a liquidity pool is a place where tokens are locked for the purpose of providing liquidity to those who seek access to it.
If the asset in the pool is illiquid, the speed of orders and transactions will slacken off, thereby increasing the risk of slippage and drastic price swings and creating disgruntled users. But if the pool is liquid enough, it will result in faster orders and faster transactions, thus users will be satisfied and decentralized exchanges will be much more guaranteed.
Instead of incorporating the idea of market makers, XY Finance creates Y Pools on all the chains that we support, where users are able to decide whether they'd like to deposit their funds to boost liquidity; the whole process is highly decentralized. The liquidity will help balance Y Pool, while token contributors or liquidity providers (LPs) will be rewarded with incentives (liquidity tokens as the swap fees) in return as they make swaps via X Swap. It's literally a win-win to reinvigorate this ecosystem.
X Swap - Y Pool interaction
When LPs deposit their funds to incentivize Y Pool and provide liquidity, they will earn the yield that consists of swap fees and liquidity mining (farming) rewards. Each pool has its specific token (only USDT or USDC are available for the time being), and the liquidity they provide is the token in that pool, hence USDT or USDC.
Typically, when funding the pool, LPs are required to fund two different crypto assets to enable traders to swap one to the other by trading them in pairs. These pairings help illustrate the relative worth of specific crypto assets, giving users the chance toq select a pairing based on currencies they already possess. For instance, if you own ETH, then you can trade with any pairing listed on an exchange that includes ETH.
However, the mechanism of our Y Pool, like that of Multichain, which focuses on the provision of bridging services, is designed as a single-asset liquidity pool where users provide only one type of token (USDC/USDT for now) as liquidity so that LPs never have to be exposed to the well-known risk called impermanent loss that LPs of DEXs (such as UniSwap) are facing and the risks such as price swings/fluctuations or the likelihood of high slippage.
Y Pools' liquidity tokens USDT & USDC on the supported chains
So, in summary, LPs provide Y Pools with liquidity (1 asset; no pairs required), and the pool returns the liquidity tokens in exchange for their contributions.
Rebalance Mechanism is triggered while ➊ traders use X Swap to swap tokens and help rebalance Y Pool or ➋ LPs directly fund the pool with their tokens (USDT or USDC). While the latter receives liquidity tokens as they help make the pool liquid, the former will receive the rebalance reward $XY for their needs of swap. Of course, there may be a scenario where most of the liquidity of one single chain moves to the other chain due to the swaps that happened in X Swap, causing an imbalance amongst the pool. In order to prevent a shortage of liquidity in Y Pools and the token imbalance therein, we've devised this so-called “Rebalance Mechanism”, and unlike that of other competitors, we are able to continuously offer instant cross-chain bridging services as well as relatively low swap fees. Suppose a user of X Swap would like to swap
XY on ETHto
Cake on BNB, and if it just so happens that the USDT on ETH in the Y Pool is facing some acute shortage as well, the user in question may directly or indirectly help alleviate this dire unbalanced situation by trading on the ETH chain. Then the source chain DEX (e.g. Uniswap) will help swap their Cream to
USDT on ETH. Next, the bridging effect of Y Pool kicks in and there will be
USDT on BNBprovided in exchange, and then the target chain DEX (e.g. PancakeSwap) will help swap the designated amount of USDT to Cake, hence
Cake on BNB. Below is the route that shows the flow of swapping that helps rebalance the Y Pool.
In short, with merely a simple click, users can maintain the bridge health and operations, rebalance the liquidity on two chains in the Y Pool, and earn $XY rewards according to their contributions.