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Stable Liquidity Pools

One important piece of the blockchain space is the use of liquidity pools so everybody can exchange one asset for another one, for FxDAO's stablecoins this is also important and for that reason, the protocol includes a series of stable liquidity pools.

What is a Stable Liquidity Pool?

A Stable Liquidity Pool is a kind of pool where the pair between two (or more) assets it's always at 1:1. This means that no matter what happens outside, your swap will always be at 1:1.

This pool is made with the idea of allowing users to swap between stablecoins issued by others and ours, the goal is to make the exchange process as easy as possible so users who might like to swap for example Circle's USDC for our USDx can do it directly within the protocol.

Is there a fee involved?

Those who want to provide/withdraw liquidity from the protocol are exempted from any type of fee, both providing liquidity and withdrawing it later is completely free of charge so you won't spend anything when doing that.

On the other hand, users who swap from one asset to another asset will pay a 0.3% fee when making the exchange (this fee can be updated), this fee is used to reward those who are providing liquidity and the DAO itself.

What's the benefit of providing liquidity?

Those who provide liquidity can benefit in two ways: exchange fees and earning the governance protocol.

Is there a risk?

Besides common risks with smart contracts, there are two main risks with stable liquidity pools:

An Asset lost its peg:

Let's imagine this situation: A user decides to deposit 500 USD1, 500 USD2, and 500 USD3... 3 days later it turns out that the issuer of USD2 is insolvent and it only has 70% of the reserves of its stablecoin, most likely people will start selling USD2 at a 30% discount but this pool will still swap it at a 1:1 price which means that you could lose value in your deposit if all the liquidity is removed from the pool and the only asset you can withdraw is in form of USD2.

Arbitrage lost:

This situation is similar to the one mentioned before with the difference that is not because of a de-peg situation, currency arbitrage is something common across the blockchain space and all liquidity pools are subject to this type of situation. Because being a 1:1 pool, this means that if for example, other pools have the exchange at 0.9970:1 you will "lose" 0.03 when someone uses your whole liquidity to swap the assets (assuming you're providing $100 on each pair)... This, of course, is mitigated by the fee the pool charges but still could happen if the arbitrage price is too high.