💧Liquidity Pools
The core functionality of liquidity pools is to allow users to exchange tokens securely, with low fees and minimal price impact.
Price impact is the change in an asset's market price caused by your own, usually large, trade absorbing liquidity. Slippage refers to the difference between the current market price of a token and the price at which the exchange/swap is executed. This difference can cause the user to receive fewer or more tokens than expected.
To provide access to the best rates on the market, the protocol distinguishes between two primary token types:
Correlated tokens (e.g., stablecoins: $USDC, $USDT, $DAI, etc.)
Uncorrelated tokens (e.g., $NOVA, $ETH, $BTC)
The protocol's router evaluates both pool types to determine the most efficient price quote and trade execution route. Generally, the greater the liquidity in a pool (higher value locked), the lower the price impact.
Variable AMM (vAMM) Pools
vAMM pools are designed for trading pairs of volatile, uncorrelated assets (e.g., WBTC/USDT). They use the constant product formula to determine pricing, which allows the pool to accommodate wide price swings but typically results in higher slippage for large trades.
Pricing formula (constant product):
Standard trading fees are higher in vAMM pools to compensate for increased volatility and risk.
Stable AMM (sAMM) Pools
Stable pools are designed for efficient trading of correlated assets with minimal relative volatility (e.g., USDT/USDC). The pricing formula used by these pools allows for much lower slippage even with large trading volumes.
Pricing formula (stable pools):
Concentrated Pools
Concentrated Pools enable Liquidity Providers (LPs) to define custom price ranges for their positions, offering precise control over capital deployment and strategy.
Price range selection
LPs choose the specific price range in which their liquidity will be active. Liquidity is only provided for trades that occur within that selected range.
Each liquidity position is unique, allowing LPs to set different strategies for the same trading pair (e.g., wide range vs. narrow range).
Higher capital efficiency
By concentrating liquidity around the current market price, LPs can earn more fees with less capital compared to traditional AMMs where liquidity is spread across all possible prices.
Benefits
Increased fee earnings due to higher capital efficiency.
Customizable risk/reward by selecting price ranges and fee tiers.
Risks
Impermanent loss can be magnified if the price moves sharply outside the chosen range.
Requires more active management compared to traditional AMMs.
These pools are primarily designed for market makers—individuals or institutions—who want fine-grained control or to build on top of Supernova.
Calculating APRs
APRs are calculated using the total staked liquidity.
Formulas (reference)
vAMM: x × y ≥ k
sAMM: x³y + y³x ≥ k
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