Liquidity

Panda Swap enables users to provide liquidity in a Concentrated Liquidity pool.

Concentrated Liquidity Market Maker (CLMM) pools enable users to provide liquidity and choose a specific price range at which liquidity is active for trades. This improves liquidity depth around the current price which translates to better prices and lower price impact on swaps.

While CLMMs benefit from higher capital efficiency, loss is magnified by the design. The design allows capital to be more efficiently allocated towards market making within a price range.

Users can select a specific price range in which to provide liquidity. LPs earn fees in proportion to their share of the liquidity at the current price. Therefore, LPs have a strong incentive to actively manage positions to ensure the current price of a pool is actively trading within their selected price range.

If the price moves out of the selected range, a position will no longer actively trade or earn fees. In a standard AMM pool, if the price of a base token rises it means that users are trading the quote token for the base token. Therefore, the pool and LPs now have more of the quote token and less of the base token.

CLMMs work in the same way. If the price trades below the position's minimum price, the position will then be comprised of 100% base token. If price trades above the max price, the position will then sell the base token and be 100% comprised of the quote token.

Liquidity pools:

When users add to a pool they will receive Liquidity Provider tokens (LP tokens). For example, if a user deposited $PANDA and $USDC into a pool, they would receive PANDA-USDC RLP tokens.

These tokens represent a proportional share of the pooled assets, enabling users to claim their funds at any point.

Every time a user swaps between $PANDA and $USDC, a 0.3% fee is taken on the trade. 0.2% of that trade goes back to the LP pool. 0.03% of that goes to buy back $PANDA. 0.05% goes to project development. 0.02% goes to LP holders rewards.