WHAT ARE LIQUIDITY POOLS?

«NukeSwap is a decentralized exchange (DEX) that runs on the Binance Smart Chain (BSC) blockchain. Liquidity pools are an important component of the platform as they allow users to provide liquidity to different cryptocurrency pairs and receive a commission in return for the transactions made on those pairs.

In a liquidity pool, users can deposit two different tokens in equal parts, creating a liquidity reserve for those tokens. For example, a user could deposit BNB and BUSD in equal parts in a NukeSwap liquidity pool for the BNB/BUSD pair.

Once the liquidity pool is created, users can trade these tokens with each other using NukeSwap. The price is automatically determined through NukeSwap’s Automated Market Maker (AMM) algorithm. This algorithm adjusts the token pair price based on the supply and demand in the liquidity pool.

When a trade is made, a small portion of the trade (usually 0.25%) is taken as a fee and distributed proportionally among the liquidity providers in the pool. This means that users who provide liquidity to the pool can earn a portion of the trading fees generated on the platform.

Liquidity pools are also used to maintain token price stability. As more trades are made in a liquidity pool, the price of the token pair adjusts to reflect supply and demand. If the demand for a token increases and its price starts to rise, the AMM algorithm will automatically increase the token’s price in the liquidity pool to keep it in line with the market price.

In summary, liquidity pools on NukeSwap are a key component of their DEX platform, allowing users to trade tokens and liquidity providers to earn a share of the generated fees. The AMM algorithm also ensures that prices remain stable and reflect market supply and demand.

Here are the basic steps for creating a liquidity pool on NukeSwap V1:

1. First, the user must have an equal amount of two different tokens they wish to add to the liquidity pool. For example, if you want to add BNB and BUSD to a liquidity pool, you will need to have the same amount of each.
2. Once the user has the necessary tokens, they should go to the «Liquidity» section on the NukeSwap page. They will be asked to approve the transfer of their tokens to the platform. They should click «Approve» to allow NukeSwap to transfer their tokens.
3. Once the tokens have been approved, the user can add them to the liquidity pool by clicking «Add Liquidity». The platform will request the amount of tokens the user wishes to add to each side of the cryptocurrency pair. NukeSwap will show the current ratio of the tokens in the liquidity pool and the amount of LP tokens that will be created as a result.
4. After the user has added the tokens to the liquidity pool, they will receive LP tokens, which represent their stake in the liquidity pool. The user can trade these LP tokens for their proportion of the underlying tokens at any time.
5. When users trade cryptocurrencies in a liquidity pool, a 0.25% fee is charged for each transaction. This fee is distributed among liquidity providers in proportion to their stake in the liquidity pool. Users can withdraw their tokens and their stake in the liquidity pool at any time.