Liquidity Provision Mechanism

Liquidity Providers (LPs) contribute assets to a pool, creating a platform for traders to engage in swaps. In exchange for their participation, LPs receive trading fees from the swaps executed by traders.

Each pool is composed of two tokens, and typically LPs provide quantities of both tokens. However, there are instances where an LP might contribute only one token, known as "single-sided liquidity." The actual proportion of tokens within the pool depends on the chosen distribution by the LP (more on this below).

LPs allocate their liquidity across various price ranges within the pool, which are represented as bins. The prices within a pool reflect the ratio of the two tokens. The bin widths vary across pools and are established by the LP initiating the pool deployment. The placement of liquidity in specific bins aligns with the LP's chosen liquidity strategy.