Pools

Each Savmswap liquidity pool is a trading venue for a pair of ERC20 tokens. When a pool contract is created, it starts with zero balances for each token. For the pool to begin facilitating trades, an initial deposit of each token is required. The first liquidity provider sets the initial price in the pool by depositing an equal value of both tokens. If they deposit tokens at a ratio diverging from the current market rate, it immediately creates a profitable arbitrage opportunity, likely to be seized by an external party.

Subsequent liquidity providers adding to an existing pool must deposit tokens proportional to the current price. If they don’t, their added liquidity risks being arbitraged. If they believe the current price is inaccurate, they have the option to arbitrage it to their desired level and then add liquidity at that price.