Glossary
AMM (Automated Market Maker): An AMM is a blockchain-based smart contract that manages liquidity reserves. Users can either trade assets directly against these reserves using a pricing algorithm or contribute liquidity to earn a portion of trading fees. The most common AMM model is the constant product formula, defined as x × y = k.
Concentrated Liquidity: Liquidity that is provided within a user-defined price range, rather than across the entire price curve. This enhances capital efficiency by focusing liquidity where trades are most likely to occur.
Concentrated Liquidity Protocol: A DEX or DeFi platform that operates using a concentrated liquidity framework, enabling users to define specific price ranges for their liquidity.
Factory: A smart contract that serves as a template to deploy unique pool contracts for each trading pair.
Pool: A smart contract created by the factory that manages the trading of two tokens. A single token pair can exist in multiple pools, each with a different fee tier.
Swap: The process of exchanging one token for a proportional amount of another token within a DEX.
Swapper: A user who executes a trade or swap on a DEX.
Liquidity: The tokens are held within a pool that can be traded by users. This pool acts as the source of funds for swap transactions.
Liquidity Provider (LP): An individual or entity that supplies tokens to a liquidity pool. In return, LPs earn a share of the trading fees while bearing associated risks such as price volatility and impermanent loss.
Reserves (Liquidity Reserves): The available token amounts in a pool that support trading activity.
Position (Liquidity Position): In a concentrated liquidity model, a position refers to the liquidity added by a user within a specified price range.
Tick: A discrete price point in the pricing structure of a concentrated liquidity protocol. Ticks define the boundaries of liquidity positions.
Tick Spacing: Refers to the granularity of price intervals in a pool. For example, a tick spacing of 8 means each tick is 0.08% apart, while 128 means each tick is 1.28% apart. Stable pairs generally use smaller tick spacing for more precise liquidity control.
Range: The span between two price ticks, representing the bounds of a liquidity position.
Range Order: A strategy similar to a limit order in traditional order book systems. It involves providing liquidity on one side of a pair that will gradually convert to the other asset as market price moves across the defined range.
Price Impact: The difference between the current market price and the price received due to the size of the trade relative to the pool’s liquidity.
Slippage: The expected or actual price difference between when a trade is submitted and when it is executed due to market movements.
Slippage Tolerance: The maximum price deviation a user is willing to accept during the execution of a swap.
APR (Annual Percentage Rate): An estimate of potential annual returns on a liquidity position, based on recent trading activity and token rewards. APR does not account for impermanent loss and is not indicative of future performance.
Impermanent Loss: A temporary loss experienced by liquidity providers due to the difference in value between holding assets directly and providing them as liquidity, especially in volatile markets. In concentrated liquidity, this risk is amplified alongside the potential rewards.
Swap Fees: Fees generated from each token swap within a pool. These are distributed between liquidity providers and the protocol itself.
Protocol Fees: A small percentage of swap fees retained by the protocol for sustainability and development purposes.
Liquidity Mining: A rewards mechanism where users provide liquidity to a DEX in exchange for incentive tokens. These rewards are generally derived from the trading activity in the pool.
Fee-based Liquidity Mining: Dexlyn’s approach to liquidity mining, which bases rewards not on the amount of liquidity provided but on the actual trading fees generated by each liquidity position. This model emphasizes efficiency over volume, rewarding higher-performing positions more effectively.