FAQ - Liquidity Pool Staking

What is the rationale behind pairing tokens when staking them in liquidity pools?

Pairing tokens in liquidity pools is rooted in the principle of Automated Market Makers (AMMs), a system that facilitates token trading within a pool where token holders have staked their assets.

In this setup, as individuals engage in transactions within the exchange pool, the exchange rate dynamically adjusts according to the buying and selling activities of participants. The pairing mechanism ensures that liquidity is maintained, enabling the smooth functioning of the Automated Market Maker.

What is liquidity pool staking?

On Unit Network, engaging in liquidity pool staking involves contributing tokens to the exchange pool, enabling individuals to trade against it. A small fee is deducted and added to the pool with each trade, providing an incentive for people to stake tokens and contribute liquidity.

Is it possible to directly exchange any token for another token on Unit Network?

Each token created on Unit Network has its own liquidity pool, paired with USDU, the US dollar stablecoin of the Unit Network, as TOKEN-USDU.

A person trading TOKEN for USDU or USDU for TOKEN trades with the pool, rather than directly one-on-one with another individual buyer or seller.

Once the one token is added and the other is removed from the pool, minus the fee for trading, the ratio in the pool adjusts back to 50-50 value, and the price of one in terms of the other is changed. Similar to the functionality on https://uniswap.org/.