Overview

Dymension hosts an embedded AMM that acts a concentrated layer of liquidity for the RollApp ecosystem. This AMM enables features such as cross-RollApp swaps, efficient token bootstrapping, and provides access to protocol incentives.

Dymension's embedded AMM is designed for exchanging ICS-20 transferred tokens. Tokens are translated from their origin format (e.g. ERC-20) for fungibility.

Standard liquidity pools

Dymension's standard AMM employs $X \times Y = K$ constant product model for two token liquidity pools. In this formula, X and Y denote the quantities of two different tokens in the liquidity pool, and K is a constant value. This mechanism allows for automatic pricing and liquidity provision, as the ratio of X to Y determines the price of each asset and adjusts with every trade.

Liquidity providers contribute assets to the pool and earn fees, but they also face risks like impermanent loss, especially when the prices of pooled tokens significantly diverge. To compensate for liquidity provisioning liquidity providers earn swap fees and are eligible for potential protocol incentives.

Base Denom

Liquidity pools are currently denominated in the base denom of DYM (native protocol token of Dymension). To facilitate swaps across different denoms in one transaction Dymension's AMM utilizes multi-hop swaps.

Users deposit fungible tokens into standard liquidity pools and in return receive a liquidity pool token (referred to as a liquidity pool share). Liquidity pool tokens represent a pro-rata share of the pools assets (user's shares out of the total amount of shares in the pool).