FAQ - Liquidity Pool Staking
Why do we pair tokens when staking them in liquidity pools?
Pairing tokens in liquidity pools is based on Automated Market Makers (AMMs), which facilitate token trading within staked asset pools.
In this system, the exchange rate adjusts dynamically based on buying and selling activities within the pool.
Pairing tokens ensures liquidity is maintained, allowing the AMM to function smoothly.
What is liquidity pool staking?
On Unit Network, liquidity pool staking involves contributing tokens to the exchange pool.
This allows individuals to trade against the pool.
A small fee is deducted from each trade and added to the pool.
This fee incentivizes people to stake tokens and contribute liquidity.
Can you exchange any token for another token directly on Unit Network?
Each token on Unit Network has its own liquidity pool, paired with USDU, the US dollar stablecoin, as TOKEN-USDU.
When trading TOKEN for USDU or vice versa, individuals trade with the pool rather than directly with another person.
After one token is added and the other is removed from the pool, minus the trading fee, the pool's ratio adjusts back to a 50-50 value.
The price of one token in terms of the other changes accordingly, similar to how it works on uniswap.org.