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 our innovative NFT-based fee system:

• Standard users: 0.3% swap fee

  • 0.25% goes to liquidity providers

  • 0.05% goes to protocol treasury

• NACHO KAT NFT holders: 0.2% swap fee

  • 0.17% goes to liquidity providers

  • 0.03% goes to protocol treasury

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.