Staking JRT to increase Uniswap liquidity – Jarvis Network
A contributor decides to create the JRT-ETH liquidity pool on Uniswap, and contributes $2,400 to it; as they created the pool, they decide the initial price of 0.1 USD — 0.00083 ETH — for a JRT; they must deposit 1,200 dollars of JRT, amounting 12,000 tokens, and it’s equivalent in ETH, amounting 10 ETH (taking 120 dollars as Ether price).
When the pair is created, a constant k is calculated, with k = x * y, x being the number of ETH and y the number of JRT. Therefore, the constant k in our example would be 120,000. This constant is used to calculate the exchange rate for each exchange on Uniswap.
Example 1: a user wishes to sell 1,000 JRT and sends them to the ETH-JRT pool, which thus counts 13,000 (12,000 initial + 1,000 new). The number of ETH they will receive in exchange is calculated according to k, so that k is always equal to 120,000. With a little math, we calculate that it will receive 0.7693 ETH. Since k = x * y, therefore x = k / y, which for for our example would be 120,000 (k) / 13,000 (y) = 9.2307 (x); there were 10 ETH in the pool, 10–9.3207 = 0.7693. The exchange rate used is therefore 0.00076 ETH (0.0912 dollars), i.e. a price offset of 8%.
Example 2: a user wants to sell 120,000 JRTs and sends them to the pool, which then has 132,000. The seller receives 10–120,000 / 132,000 = 9.09 ETH, an exchange rate of 0.000076 ETH (0.0090 dollars), or a price offset of 91%.
The greater the sales volume in relation to the liquidity of the pool, the greater the slippage and the price fall. At this stage, the contributor to the pool would only have 0.91 ETH left, but would have 132,000 JRT on the other hand. To this would be added the commissions earned from Uniswap, the one from the Jarvis Network and the rewards in JRT to reward the staking. Some will see it as an interesting result since it means having acquired 120,000 JRT in exchange for 9 ETH, others will see it a disappointing result.
Example 3: another contributor decides to provide liquidity to the pool until it is endowed with 100 ETH and 120,000 JRT. A new constant k is calculated, that is 12,000,000 (k is recalculated each time liquidity is added or removed); selling 120,000 JRT would have less impact on the price: 100–12,000,000 / 240,000 = 50 ETH, i.e. an exchange rate of 0.00042 EHT (0.05 dollar), i.e. a price offset of 50% at instead of 91…
Published at Thu, 09 Jan 2020 12:39:12 +0000
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