How a Xion DeFi Liquidity Pool Works
To form a trading pair, the DeFi liquidity pool needs to hold two tokens within a smart contract. For example, Xion’s XGT coin will be paired with a stable coin like xDAI to create a liquidity pool where anyone can provide liquidity and trade xDAI with XGT and vice versa.
If, say, 1 xDAI is equal to 1000 XGT, liquidity providers contribute an equal value of xDAI and XGT to the pool. So if someone is pooling 1 xDAI, it would be matched with 1000 XGT. The pool’s liquidity makes it possible to trade anytime based on the existing funds instead of waiting for a trader to match the trade.
Xion makes use of Uniswap contracts since they are open-sourced, gas efficient, and a tried and tested platform that first popularized liquidity pools.
The token itself need not be restricted to the xDAIXGT pool, though, so users are free to open their own pools on Uniswap, once enough traction has been reached.
In case of withdrawal of stakes from the liquidity pool, a withdrawing LP needs to burn its pool tokens to effect withdrawal.