Liquidity Pool (LP)

The purpose of this document is to provide an overview of the PMT liquidity pools and their functionality. PMT liquidity pools serve as trading venues for pairs of ERC20 tokens.


It is also essential to consider the needs of pre-sale buyers who have played a significant role in kickstarting the project. We understand that some buyers may have the urge to sell their acquired tokens immediately on the market. This freedom to engage in open and free trade is crucial. Without the availability of liquidity, selling would be challenging. To address this, our developer wallet has provided liquidity to the pool at a rate that we believe is fair and just. This approach enables early buyers to have access to the pool, generates fees, facilitates token burning, and contributes to funding the vault. Ultimately, these actions enhance the long-term prospects of the protocol.

When a pool contract is created, the balances of each token within the pool are initially set to 0. To initiate trading within the pool, the pool must be seeded with an initial deposit of each token. As the developer wallet, we play a role in this seeding process, which establishes the initial price of the pool. It is crucial for the initial liquidity provider to deposit an equal value of both tokens to ensure fair pricing. Deviating from the current market rate in the initial deposit creates opportunities for arbitrage by external parties.

When additional liquidity providers add to an existing pool, they must deposit tokens proportional to the current price to avoid the risk of being arbitraged. If they believe the current price is incorrect, they can arbitrage it to their desired level and add liquidity accordingly.

Pool Tokens:

Whenever liquidity is deposited into a pool, liquidity tokens are minted and sent to the provider’s address. These tokens represent the contribution of each liquidity provider to the pool. The number of liquidity tokens received is determined by the proportion of liquidity provided. In the case of minting a new pool, the number of liquidity tokens received equals sqrt(x * y), where x and y represent the amounts of each token provided.

During trades, a 0.5% fee is charged to the transaction sender. This fee is distributed proportionally to all liquidity providers in the pool upon completion of the trade.

To retrieve the underlying liquidity and any accrued fees, liquidity providers must “burn” their liquidity tokens. This process involves exchanging the liquidity tokens for their portion of the liquidity pool and the proportional fee allocation.

Liquidity tokens are tradable assets, allowing liquidity providers to sell, transfer, or utilize them as needed.

Advanced Topics: Understanding Returns, Fees, and Why Pools?

PMT utilizes Liquidity Pools instead of traditional order books to determine asset prices and match buyers and sellers. Liquidity Pools offer certain advantages over order books. Order books require centralized infrastructure for hosting and matching orders, adding complexity and points of control. They also require active management from market makers, limiting participation to advanced traders. In contrast, Liquidity Pools leverage the strengths of Ethereum’s trusted code execution environment, perpetually running virtual machine, and open and inclusive access model.

It is important to reiterate that a Pool is just a smart contract, operated by users calling functions on it. Swapping tokens is calling swap on a Pool contract instance, while providing liquidity is calling deposit.

Developers have the ability to directly interact with the smart contracts and seamlessly integrate Uniswap functionality into their applications, bypassing intermediaries and the need for explicit permission. This empowers developers to leverage the Uniswap protocol’s features and benefits within their own applications, enabling a more streamlined and efficient user experience.

We extend our heartfelt appreciation to the Uniswap team for their invaluable insights and guidance in facilitating this implementation. Their expertise and unwavering support have played a pivotal role in ensuring the success of this project. Furthermore, the utilization of flowcharts has proven essential in enhancing the clarity and comprehension of the underlying processes.

Once again, we express our gratitude to the entire Uniswap team for their remarkable contributions.