Introduction to ZetaChain's Unified Blockchain
ZetaChain stands out as a foundational layer for decentralized applications, offering a universal approach to blockchain interoperability. At the heart of its functionality are two critical liquidity mechanisms: user-facing concentrated liquidity pools and protocol-managed gas pools. This guide breaks down how these systems work, their differences, and how developers and users can leverage them.
Understanding Concentrated Liquidity Pools
The Basics of Concentrated Liquidity
In traditional automated market maker (AMM) models, liquidity is spread uniformly across an infinite price range. ZetaChain adopts the Uniswap v3 model, where liquidity providers (LPs) concentrate their capital within specific price bands. This means funds are actively used for swaps only when the market price is within the chosen range, leading to higher capital efficiency and potential fee earnings.
How Liquidity Provisioning Works
When adding liquidity, LPs deposit two assets and define a price range. A narrow range maximizes fee earnings if the price remains stable but requires active management. A wider range offers passive exposure with lower risk of being "out of range." This flexibility allows LPs to balance risk and reward based on their market outlook.
Fee Tiers and Structures
ZetaChain's concentrated pools support multiple fee tiers (e.g., 0.01%, 0.05%, 0.3%, 1%), allowing each token pair to reflect its volatility. Stablecoin pairs might use lower fees to encourage volume, while volatile assets use higher fees to compensate LPs for risk. Fees are distributed pro-rata to LPs whose ranges are active during trades.
Benefits for Liquidity Providers
LPs gain granular control over their positions, represented as non-fungible tokens (NFTs). They can:
- Maximize capital efficiency by focusing on high-demand price ranges.
- Express market views (e.g., setting a range above current prices acts like a limit order).
- Earn higher fees compared to v2-style pools, provided they manage their ranges actively.
👉 Explore advanced liquidity strategies
Comparing Gas Pools and Concentrated Liquidity Pools
What Are Gas Pools?
Gas pools (or core pools) are protocol-managed liquidity pools designed to facilitate cross-chain transactions. They consist of ZETA paired with a chain's native gas asset (e.g., ZETA/ETH for Ethereum). These pools ensure the protocol can always cover gas fees for cross-chain operations, especially in error recovery scenarios.
Functional Differences
Gas pools use a Uniswap v2 model, with liquidity distributed uniformly across all prices. This ensures reliability—critical for cross-chain functionality—as the protocol must always access liquidity at any market price. In contrast, concentrated pools use custom ranges and are optimized for capital efficiency in trading.
Purpose and Use Cases
Gas pools serve internal protocol needs, handling small, steady swaps for gas conversions. User-facing concentrated pools support open trading and speculation. The former prioritizes reliability, while the latter focuses on efficiency and flexibility.
Incentives for Liquidity Providers
LPs in gas pools earn fees from cross-chain activity and arbitrage. The fee structure is typically fixed (e.g., 0.3%), and returns are driven by network usage. Concentrated pool LPs earn from trading fees and may receive additional incentives from decentralized exchanges (DEXs).
Key Differences Summary
- Gas Pools: Cross-chain functionality, v2 AMM model, protocol-oriented.
- Concentrated Pools: Trading efficiency, v3 AMM model, user-oriented.
Both systems complement each other, with gas pools ensuring operational reliability and concentrated pools enhancing market efficiency.
How Developers Can Utilize v3 Pools
Integrating Cross-Chain Swaps
ZetaChain provides toolkit libraries and example contracts for developers building omnichain dApps. The Swap universal contract demonstrates how to route tokens through ZetaChain's liquidity pools, handling gas fees and output swaps. Adapting this to v3 pools involves calling v3 router functions instead of v2.
On-Chain Swap Integration
For applications solely on ZetaChain, developers can integrate with concentrated liquidity pools using standard Uniswap v3 contracts. Functions like exactInputSingle or exactInput (for multi-hop swaps) are available through deployed routers. SDKs from Uniswap or Sushi can be configured with ZetaChain's network parameters.
Leveraging Existing DEX Infrastructure
DEXs like SushiSwap v3 are already deployed on ZetaChain, offering concentrated liquidity services. Developers can route trades through these protocols without building custom AMMs. Integration involves calling smart contracts directly or using provided APIs.
Best Practices for Developers
- Check pool liquidity depth and simulate swaps off-chain to manage slippage.
- Set reasonable slippage tolerances in transactions.
- Consider using DEX aggregators for optimal pricing across multiple pools.
- Utilize ZetaChain's cross-chain messaging to combine bridging and swapping into seamless user flows.
Developer Tools and Resources
- Uniswap v3 documentation for contract integration details.
- ZetaChain Blockscout explorer for contract addresses.
- Community Discord for support and best practices.
- Official GitHub repositories for deployed contract references.
👉 Get developer toolkit and resources
Benefits for Users and Developers
Advantages for Traders and LPs
Traders experience lower slippage and better prices due to concentrated liquidity around market rates. LPs enjoy higher potential yields and greater control over their strategies. The flexibility to choose ranges or opt for passive exposure makes ZetaChain's pools accessible to all user types.
Advantages for Developers
Developers benefit from:
- Efficiency: Higher capital efficiency reduces the liquidity needed for deep markets.
- Improved UX: Lower slippage leads to better user experiences in dApps.
- Innovation Opportunities: Programmable liquidity positions (via NFTs) enable advanced features like dynamic range adjustment or automated strategies.
- Unified Liquidity: Cross-chain accessibility simplifies liquidity management and reduces fragmentation.
Frequently Asked Questions
What is concentrated liquidity?
Concentrated liquidity allows LPs to allocate funds within specific price ranges, increasing capital efficiency and potential fee earnings compared to traditional AMMs.
How do gas pools differ from trading pools?
Gas pools are used by the protocol for cross-chain gas conversions and use a v2 AMM model for reliability. Trading pools are user-facing, use v3 models for efficiency, and support customizable ranges.
Can I provide liquidity passively on ZetaChain?
Yes. LPs can choose wide or full price ranges in concentrated pools, mimicking v2-style passive exposure. Gas pools also offer passive earning opportunities from cross-chain activity.
What tools are available for developers?
ZetaChain provides contract examples, SDKs, and documentation for integrating swaps. Developers can also use existing DEX infrastructures like SushiSwap v3.
How does ZetaChain ensure low slippage?
Concentrated liquidity pools accumulate depth around market prices, reducing price impact for trades. Aggregators and efficient routing further optimize swap outcomes.
Are gas pools accessible for user trading?
While users don't directly trade in gas pools, arbitrage opportunities exist. These pools are primarily for protocol operations but earn fees for LPs.