Liquidity Pools

What Are Liquidity Pools?

Liquidity Pools serve as repositories where tokens, often referred to as liquidity, are pooled. This setup enables users to execute trades in a decentralized and permissionless manner. When supplying liquidity to these pools, the amount must be evenly distributed between two tokens: the primary token and the base token. Blasted's liquidity pools enable users to supply liquidity. In return for doing so, they are awarded $BLASTED tokens as evidence of their contribution. For instance, if a user deposits $BLASTED and $ETH into a pool, they would be issued $BLASTED tokens. These tokens denote a proportional stake in the pooled assets, ensuring users can retrieve their rewarded assets whenever they wish.

Whenever liquidity is added to a pool, specific tokens, termed as liquidity tokens, are minted and forwarded to the provider's address. These tokens signify the particular contribution of a liquidity provider to that pool.

The amount of liquidity tokens a provider receives is determined by the proportion of the pool's liquidity they supply. If the provider is creating a new pool, the number of liquidity tokens they will obtain is given by the formula: sqrt(x * y), where x and y are the quantities of each token contributed.