Pool Manager

The Pool Manager is a contract that handles AMM pools.

Pools can contain two or three assets and are used to provide liquidity to the DEX. The Pool Manager is responsible for creating pools and handling swaps, whether they are single or multi-hop operations.

How it works

The following is a high-level overview of how the Pool Manager works. It touches on some technical details, assisting developers in understanding the contract's inner workings while also providing a general understanding of the contract's functionality, so a regular user can understand how to interact with it.

Pool Creation

Creating pools is a simple and permissionless process. A user can call the CreatePool message, with the desired pool parameters such as asset denoms, fees, and pool type among others, together with the pool creation fee. The pool creation fee is a protocol fee that is sent to the Fee Collector. There can be multiple pools for the same asset pair, though each pool must have a unique identifier. Pools cannot be removed or updated once created, so it is important to get the parameters right from the start.

The liquidity in a given pool is tracked with LP tokens, which are minted via the Token Factory module by the Pool Manager. These tokens represent the user's share of a pool's liquidity, and they can be used to redeem the assets in the pool.

Pool information is stored in the POOLS map, containing information such as the asset denoms and decimals, the LP denom, the assets in the pool (balance), the pool type and pool fees.

A pool can be of two types: ConstantProduct (xyk) or StableSwap. The ConstantProduct type is suitable for assets that may have varying values and are not intended to be equivalent. The StableSwap type is suitable for assets that are meant to be the same and whose values should be approximately the same, such as stablecoins.

Deposits and Withdrawals

Users can deposit and withdraw assets from the pools at any time. To deposit, users must call the ProvideLiquidity message, together with the pool identifier and the assets to deposit among other parameters. For pools with two assets, it is possible to provide liquidity with a single asset. The Pool Manager will swap half of the provided asset for the other asset in the pool, ensuring the pool's balance is kept in check.

Once the user has provided liquidity, they will receive LP tokens in return proportional to the amount of liquidity provided.

To withdraw liquidity, users must call the WithdrawLiquidity message, with the pool identifier together with the LP token to redeem the assets. The Pool Manager will burn the LP tokens and send the corresponding assets to the user, updating the pool's balance accordingly.

Swaps

Swaps are the main feature of the Pool Manager. Users can swap assets from one pool to another by using the Swap message. If the swap is a single-hop operation, the Pool Manager will perform the swap directly. If the swap is a multi-hop operation, the ExecuteSwapOperations message should be used instead, providing the route to follow for the swap to be executed successfully.

After a swap takes place, the pool's balances are updated, and the fees are collected and sent to the Fee Collector, while the swap fee remains in the pool to benefit the LP token holders, increasing the pool's liquidity and thus the LP token value.

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Pool Manager operations can be visualized as follows:

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---
title: Pool Manager Overview
---
graph LR
    A[Pool Manager] --> B(Pool Creation)
    A --> C(Deposits and Withdrawals)
    A --> D(Swaps)

    subgraph Pool Creation
        B --> E["CreatePool (User)"]
        E --> X[Fees Collected by Fee Collector]
        E --> F[Pools Map]
    end

    subgraph Deposits and Withdrawals
        C --> G["ProvideLiquidity (User)"]
        C --> H["WithdrawLiquidity (User)"]
        G --> I[LP Tokens Minted]
        H --> J[LP Tokens Burned]
        J --> Z[User gets assets equivalent to the LP shares burned]
    end

    subgraph Swaps
        D --> K["Swap (Single-hop)"]
        D --> L["ExecuteSwapOperations (Multi-hop)"]
        K --> M{Pool Balances Updated}
        L --> M
        M --> N[Fees Collected by Fee Collector]
        M --> O[Swap Fees Remain in Pool for LPs]
    end