Glossary

AMM: AMM is the short of automated market maker. It is a blockchain-based smart contract that holds liquidity reserves. Users can either trade against liquidity reserves at prices determined by a specific formula, or provide their liquidity to the liquidity reserves to earn fees generated by ongoing swaps. Usually, AMM particularly refers to the constant product market maker which complies with the classic x*y=k formula.

Concentrated Liquidity: Liquidity that is allocated within a specified price range.

Concentrated Liquidity Protocol: A dex or a DeFi protocol that is built with the concentrated liquidity infrastructure.

Factory: A smart contract that deploys a unique smart contract for any trading pairs.

Pool: A smart contract deployed by the factory contract that pairs two types of tokens. A same token pair may have different fee tiers which lead to multiple pools.

Swap: Trading one asset to proportional amount of another asset on a dex.

Swapper: Users who place and execute swap orders on a dex.

Liquidity: Tokens that are stored in a pool contract and are able to be traded against by traders.

Liquidity Provider: Also called “LP”. Liquidity providers are those who deposit required tokens into a liquidity pool. Liquidity providers are rewarded with transaction fees as new swaps occur continuously while bearing the volatility risk and other risks of holding the liquidity assets.

Reserves: Or say liquidity reserves. The liquidity available in a particular trading pool.

Position: In a concentrated liquidity protocol, the liquidity that is added by a user within a custom price range can be called a position or a liquidity position.

Tick: The price in a concentrated liquidity protocol is discrete. The price curve of concentrated liquidity is partitioned by a number of ticks. The price ticks also set the borders of a liquidity position.

Tick Spacing: Each pool is divided evenly into numerous fractions of liquidity with predefined boundaries called "ticks". A tick spacing of 8 means that each tick is 0.08% larger than the previous tick, and 128 means that each tick is 1.28% larger than the previous tick. Stable pools will use smaller tick spacing to allow for more granular price ranges.

Range: Any interval between any two price ticks in a concentrated liquidity protocol.

Range Order: Similar to a limit order on an order book market. Single-sided assets are provided as liquidity and are continuously swapped to the desired asset as the spot price crosses the full price range of the position.

Price Impact: The difference between the current price and the execution price of a transaction.

Slippage: Slippage or price slippage means the possible price change that may occur when a submitted swap transaction is pending.

Slippage Tolerance: Slippage tolerance is the largest price change a user would like to accept during the execution of corresponding swap order.

APR: The estimated returns on your position based on 24-hour trading activity and token emissions projected over a year. APR does not consider any possible impermanent loss. Past activity is not a guarantee of future returns.

Impermanent Loss: Impermanent loss is a temporary loss of funds occurring when providing liquidity. It's a difference between holding an asset versus providing liquidity in that asset due to the unpredictable asset volatility. In a concentrated liquidity protocol, both the yield from trading fees and rewards and possible impermanent loss are amplified.

Swap Fees: The fees collected upon swapping, which eventually go to liquidity providers and the protocol.

Protocol Fees: A small proportion of swap fees will be reserved by the protocol as protocol fees.

Liquidity Mining: Liquidity mining is a process in which crypto holders provide assets to a decentralized exchange as its liquidity in return for token rewards. These rewards commonly stem from trading fees that are accrued from traders swapping tokens.

Fee-based Liquidity Mining: This is the underlying model adopted by Cetus for its liquidity mining. Traditional liquidity mining usually evaluate its reward distribution according to the liquidity amount of a user. In a concentrated liquidity protocol, a higher liquidity amount doesn't necessarily mean better liquidity effectiveness. Therefore, Cetus distributes its mining rewards based on the actual transaction fee generated by each liquidity position. A greater fee performance deserves higher rewards.