Supported Pool Types
Guide to understanding various pool types supported by Kriya.
Last updated
Guide to understanding various pool types supported by Kriya.
Last updated
Kriya Swap currently supports three distinct pool types each having different pricing curves. While creating pools, users can configure the pool type and fee structure of the pool accordingly. This page provides an overview of these pool types and details on how they function below.
The defining idea of concentrated liquidity is to allocate it within a custom price range. In earlier versions, liquidity was distributed uniformly along the price curve between 0 and infinity, but v3 allows liquidity providers to concentrate their capital in smaller, more efficient price intervals.
Mechanism:
Concentrated Liquidity: LPs can allocate capital to specific price ranges, creating individualized price curves. For example, in a stablecoin/stablecoin pair, an LP may choose to allocate capital solely to the $0.99 - $1.01 range.
Active Liquidity: As the price of an asset changes, it may exit the price bounds set by LPs. When this happens, the liquidity is no longer active and doesn’t earn fees. If the price reenters the interval, the liquidity becomes active again.
Ticks: The continuous spectrum of price space is partitioned with ticks, which are boundaries between discrete areas in price space. Ticks represent small percentage changes in price and function as boundaries for liquidity positions.
Constant Product Pools are inspired by Uniswap V2’s AMM design and are suitable for trading uncorrelated asset pairs (within v2 pools). These pools are perfect for bootstrapping liquidity for long-tail altcoins.
Mechanism:
Most AMMs utilize the Constant Product Function, a formula for calculating two tokens’ relative prices that ensures that a pool will not be drained as a result of any liquidity event. The standard liquidity curve function looks as follows:
In this formula, x and y are the amounts of the two tokens in a pool, and their product k is a constant. Any trade (swap) changes the amounts x and y, but k remains the same. This formula is suitable for uncorrelated swaps (assets whose prices aren’t correlated with each other) and works well in most cases, including on Kriya Swap.
Constant product pools are ideal for pairs where the assets are not price-correlated. For swaps between stablecoins and other correlated assets, however, the simple constant product formula is not very effective.
Decentralized swaps between stablecoins like USDT, USDC, and DAI have always been challenging for popular DEXes due to high slippage. When using the constant product formula, a single large swap can significantly affect a token’s price, especially when liquidity in the pool is shallow.
Mechanism:
To address this, Kriya uses a different formula for swaps between correlated assets to minimize slippage even for large transactions. The formula, inspired by Solidly, a stablecoin DEX on Fantom, is:
For stablecoins, maintaining a 1:1 (or almost) trading ratio is crucial, as they are often traded in large volumes. The same principle applies to pairs like BTC/WBTC and ETH/WETH, where the relative prices are ideally correlated. The stable swap formula used by Kriya minimizes slippage, ensuring that prices remain stable even during large transactions, making it highly effective for correlated asset pairs.
