Core Concepts
Liquidity Pools
Liquidity pools are at the heart of Fathom DEX, enabling users to provide liquidity and facilitate token swaps. A liquidity pool is a smart contract that holds pairs of tokens. Users can contribute to these pools by depositing equal values of two tokens, earning a share of the trading fees generated by the pool.
Key Points:
Liquidity Providers: Users who add tokens to a liquidity pool are known as liquidity providers (LPs). In return for their contribution, they receive LP tokens, which represent their share of the pool.
Earning Fees: LPs earn fees from trades that occur in their pool. These fees are proportional to their share of the total pool liquidity.
Impermanent Loss: LPs should be aware of impermanent loss, a temporary loss in value that can occur when the price of deposited tokens changes relative to each other.
Token Swaps
Token swaps are the primary function of Fathom DEX, allowing users to exchange one token for another directly from their wallets. The platform uses an Automated Market Maker (AMM) model to facilitate these swaps without the need for an order book.
Key Points:
Automated Market Maker: The AMM algorithm uses a constant product formula (x * y = k) to determine the price of tokens in a pool. This ensures continuous liquidity and efficient price discovery.
Slippage: Swaps may incur slippage, which is the difference between the expected price of a trade and the actual price. Slippage occurs due to changes in the pool’s token ratio during the swap.
Transaction Fees: Each swap incurs a small transaction fee, which is distributed to the liquidity providers of the respective pool.
Fees and Rewards
Fathom DEX operates on a fee structure designed to incentivize liquidity provision and ensure a sustainable ecosystem.
Key Points:
Trading Fees: A percentage of each trade executed on the platform is collected as a fee. This fee is distributed among the liquidity providers of the pool where the trade occurred.
LP Rewards: In addition to trading fees, liquidity providers may earn rewards in the form of native tokens or other incentives, depending on the platform’s reward programs.
Staking and Farming Rewards: Users can participate in staking and yield farming programs to earn additional rewards. These programs encourage long-term participation and enhance overall liquidity.
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