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Permissionless Liquidity Book Pools

How to open and a Liquidity Book Pool

Trader Joe avatar
Written by Trader Joe
Updated over a week ago

In this article you can learn how to open a new liquidity pool and also understand the difference between V1 / V2 as well as the 'BPs' for V2 pools.

Open a Pool

Navigate to the Pool page and select 'Create New Pool'. You will be presented with two options 'V1' and 'V2'. Select V2 to start your market setup for a Liquidity Book Pool.

What is the difference between V1 and V2?

V1 will setup a Liquidity Pool on the x*y=k AMM. This AMM maintains a 50/50 balance of tokens in the Liquidity Pool by spreading the assets over a price curve from $0 to infinity. If you are setting up a pool for a brand new token on the DEX, this is likely you're best choice for a new pool as the AMM always keeps your tokens balanced.

V2 will setup a Liquidity Book Pool, this is a pool that allows liquidity providers to concentrate their liquidity, increasing capital efficiency of their assets significantly but at an increased risk and responsibility that requires all liquidity to be managed and kept within range.

V2: Setting up a Pool

Selecting V2 when you create a new pool will present you with some key options that let you select your chosen Tokens and your Bin Step configuration.

What are Base Assets and Quote Assets?

  • Token X = Base Asset

  • Token Y = Quote Asset

The Base Asset can be any token that you decide, this is the token that you are pairing directly with a Quote Asset. The Quote Asset is the Token that is used to price the Base Asset and will only be defined to certain tokens, such as AVAX, ETH or USDC.

Quote Assets are restricted to key tokens to ensure liquidity + routing is kept optimal.

What is Bps (Bin Step) and what is best for my pool?

Every Liquidity Pool is composed of 'bins' that act as containers for liquidity, each Bin represents a fixed price point for the assets in the Pool. Bins are aggregated to form a liquidity pool with a complete price curve for the assets. Every Bin has a gap between them, this gap is essentially the price jump between each Bin, this is called the Bin Step.

Example of 20bps (0.2%) discretisation:

  • ARB - USDC Bin 1: $1.21464

  • ARB - USDC Bin 2: $1.21707

Comparison Example:

Liquidity deployed over 20 bins in a 100bps (0.8%) pool will cover a 22% price range whereas liquidity deployed over 20 bins in a 20bps (0.2%) pool which would cover 4% price range.

If you are opening a brand new Liquidity Book Pool for your token, you may want to consider opening a pool with a higher discretisation as it will likely be an easier experience managing the liquidity position and keeping it within range.

V2: Finalize and Launch your Pool

Once you have defined your Tokens and Bin Step configuration, you are ready to create your pool. the final step before launching is to define the current active market price. This is an important step as entering in the wrong price of your assets will lead to initialization of the Liquidity Book pool with an inaccurate market price that may result in loss of funds.

Check the Active Price and ensure it is the correct price that is reflective of the market. If you enter in the wrong active price, your funds will likely be arbitraged and you will not be able to recover your funds.

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