FAQ

What is Swapsats and how does it work?

Liquidity Pools:

Imagine a pool filled with two different cryptocurrencies

Users (liquidity providers) contribute their own crypto holdings to these pools, increasing the pool's liquidity.

The value of each token in the pool is determined by the ratio of the two tokens within it.

Constant Product Formula:

AMMs use a mathematical formula to ensure there's always a fair price for each token.

This formula keeps the product (multiplication) of the two reserve amounts in the pool constant, even as trades happen.

In simpler terms, if you take one Rune out, you need to put in more of other Rune/BTC (or vice versa) to maintain the overall ratio.

How Swapping Works:

When you want to swap tokens on Swapsats, you're essentially taking a certain amount of one token out of the pool and adding an equivalent value (based on the formula) of the other token

The AMM automatically adjusts the price of the tokens based on the swap to maintain the constant product.

The larger the swap compared to the pool size, the bigger the price impact (slippage) you might experience.

Benefits of AMMs:

Anyone can swap tokens without needing approval or counterparties.

Liquidity pools ensure there's always someone to buy or sell, even for less common tokens.

You can swap any amount to any amount instead of fixed buy and sell orders

How do I swap tokens on Swapsats?

You can refer to our video in below YouTube Link for detailed step by step guide

What are liquidity pools and how do they affect my swap?

Liquidity pools are the backbone of trading on Swapsats and similar AMM (Automated Market Maker) platforms. They act as a giant pot of two different cryptocurrencies, like a bowl filled with red and blue marbles. Here's how they affect your swap

The Source of Liquidity: Unlike traditional exchanges that rely on order books from buyers and sellers (Binance,Kucoin etc) or P2P trades (Unisat, Magiceden), Swapsats utilizes liquidity pools.

These pools are created by users called liquidity providers (LPs) who deposit equal value of two specific tokens. The more tokens in a pool, the deeper the liquidity, meaning there's a larger pool of assets to facilitate trades.

Impact on Swap Price:

The ratio of the two tokens in a pool determines the price of each token.

When you swap tokens on Swapsats, you're essentially taking one token out of the pool and adding an equivalent value of the other token based on this ratio.

How Liquidity Affects Your Swap:

Deeper Liquidity = Less Price Impact (Slippage): Swapping a small amount from the pool will have minimal impact on the overall ratio, so the price you receive will be very close to the market price.

Shallower Liquidity = More Price Impact (Slippage): Swapping a large amount from a small pool will significantly affect the ratio. The price might adjust more drastically, and you might receive slightly less of the token you're buying than anticipated. This is called slippage.

Overall, liquidity pools ensure there's always someone to buy or sell on Swapsats, but the depth of a pool can influence the price you receive when swapping tokens.

What are fees associated with swapping tokens on Swapsats?

Fees are set to a minimum of 0.00002BTC or 1.5% of your trade value

What is the slippage tolerance and how do I set it?

Slippage tolerance on Swapsats is your built-in buffer for price changes during a trade. It essentially tells the platform how much the price can deviate from what you see initially before the swap fails.

Here's a quick breakdown:

• Setting: You can usually find a "slippage tolerance" setting on Swapsats interface. It's often displayed as a percentage.

• Higher Tolerance: A higher tolerance allows for bigger price swings but ensures your trade has a higher chance of going through.

• Lower Tolerance: A lower tolerance minimizes price changes but increases the risk of your swap failing if the market fluctuates slightly.

• Choosing the right tolerance depends on your priorities:

• Choosing the right tolerance depends on your priorities:

  • Fast trade with some price flexbility? Choose a higher tolerance

  • Guaranteed price but risk of failed swap? Choose a lower tolerance

How do I add liquidity to a pool on Swapsats?

You can refer to our video in below YouTube Link for detailed step by step guide

What are the benefits of providing liquidity on Swapsats?

There are two main benefits to providing liquidity on Swapsats:

• Earn trading fees: A portion of the fees (40%) collected on every swap within the pool you contribute to are distributed proportionally to liquidity providers. This can be a good way to generate passive income on your crypto holdings.

• Support the ecosystem: By adding liquidity to pools, you help ensure smoother trades for everyone using Swapsats. This can contribute to the overall health and growth of the BTCFi ecosystem.

However, it's important to be aware of the risks involved, such as impermanent loss, before becoming a liquidity provider.

What is impermanent loss?

Impermanent loss is a risk specific to liquidity providers on AMM platforms. It's a potential loss in the perceived value of your holdings, but it's only truly realized if you withdraw your tokens at an inconvenient time.

Here's the gist:

• When you provide liquidity, you deposit equal value of two tokens (say, token A and token B).

• The price of these tokens can fluctuate after you deposit them.

• If the price of one token goes up significantly compared to the other, while you remain in the pool, the value of your share might not reflect that increase. This is the impermanent loss.

Think of it like this:

Imagine depositing 1 BTC (worth $50,000) and 500 Runeasf (also worth $50,000) into a pool. The price of BTC then shoots up to $60,000. If you withdraw now, you might get back slightly less than $60,000 worth of total value because the pool automatically adjusts the ratio to maintain balance.

However, there's a catch:

If you wait and the price of ETH goes back down, your impermanent loss disappears. Your share reflects the combined value of both tokens again.

Impermanent loss isn't a guaranteed loss, but a potential one depending on price movements and when you withdraw.

How do I connect my wallet to Swapsats?

You can refer to the same video as above to understand that