Liquidity Providers

Here you can find step-by-step guides on depositing liquidity and deploying pools on OxiSwap. In other words, everything you need to know about acting as a liquidity provider.

What is a liquidity pool?

A liquidity pool is group of tokens that are locked in a smart contract and used for trading between assets on a decentralized exchange (DEX) like OxiSwap.

In traditional finance, liquidity is organized using a central limit order book where buyers and sellers create orders (trade) organized by price and demand.

The OxiSwap takes a different approach, using Dynamic K-Value Model to replace the traditional method with a liquidity pool of two assets, where the price is determined by an AMM.

These pooled tokens are provided by liquidity providers (LPs) who receive an LP token in exchange for providing liquidity.

OxiSwap can base the algorithm on the constant product model (x * y = k) used by Uniswap but extend it for volatile cryptocurrency pairs with a dynamic adjustment mechanism.

What is a Dynamic K-Value Model?

In traditional AMM models, k is constant. However, in Oxiswap’s algorithm, k adjusts based on market volatility. When volatility is high, k increases to provide additional liquidity buffer and ensure smooth trading. When the market is stable, k decreases to maintain more accurate pricing.

Price Adjustment Mechanism: By monitoring on-chain data (e.g., trading volume, historical volatility), Oxiswap periodically adjusts the value of k. Specifically, the algorithm modifies k based on recent volatility (σ).