Pools
Understanding Liquidity Pools
Liquidity pools are at the heart of Zealous Swap's operation. Each pool is a trading venue for a pair of tokens. Unlike traditional exchanges that use order books, Zealous Swap uses these automated pools to enable decentralized trading without intermediaries.
How Pools Work
When a new pool is created, its initial token balances are zero. For trading to begin, someone must provide the first deposit of both tokens. This first liquidity provider sets the initial price of the pool and is incentivized to deposit an equal value of both tokens to avoid immediate arbitrage opportunities.
Subsequent liquidity providers must add tokens proportionally to the current price ratio. If they believe the current price is incorrect, they can arbitrage it to their desired level first, then add liquidity at that price.
V2 Architecture Benefits
Zealous Swap has strategically chosen to implement the V2 AMM architecture for our initial deployment, offering several advantages:
Concentrated Liquidity: All liquidity for each trading pair exists in a single pool, creating deeper liquidity and reducing price impact
Simplified Liquidity Provision: Lower barrier to entry with no complex range setting required
Better for New Ecosystems: Ideal for bootstrapping liquidity in Kaspa's emerging DeFi landscape
LP Tokens
When you deposit liquidity into a Zealous Swap pool, you receive unique tokens called LP (Liquidity Provider) tokens. These tokens represent your share of the pool and have several important properties:
They're minted when you add liquidity and sent to your address
The number you receive is proportional to your contribution to the pool
For new pools, the amount equals sqrt(x * y), where x and y are the amounts of each token provided
LP tokens can be transferred, sold, or used in other DeFi applications
They can be burned to withdraw your share of the pool plus accrued fees
Fee Structure and Distribution
Zealous Swap features a dynamic fee system powered by both our Modular Fee System and the NACHO KAT NFT staking discount.
By default:
Standard users: 0.3% swap fee
0.25% to liquidity providers
0.05% to protocol treasury
Qualified NFT stakers (100,000+ Power Points): 0.2% swap fee (33% discount)
0.17% to liquidity providers
0.03% to protocol treasury
However, thanks to our Modular Fee System, individual pools may have different fee rates (e.g. 0.1%, 0.5%, etc.) depending on the pool's purpose, asset type, or market conditions. In all cases, NACHO KAT NFT stakers still receive a 33% discount off the base fee rate.
Fees are distributed to all liquidity providers in the pool based on their share of LP tokens.
Why Pools Instead of Order Books?
Traditional order books require:
Intermediary infrastructure to host and match orders
Active management from sophisticated market makers
Complex infrastructure that creates points of control
Zealous Swap's liquidity pools are:
Fully on-chain and decentralized
Automatically managed by smart contracts
Accessible to anyone, not just advanced traders
Ideal for new tokens with initially lower liquidity
Perfect for the Kaspa ecosystem where anyone can create tokens
Future Scalability
Our V2 implementation establishes a foundation for future protocol upgrades, allowing for V3 features as the ecosystem matures while enabling smooth transitions with minimal disruption to users.
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