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Understanding Liquidity Pools

Liquidity pools are the backbone of Alpaca DEX. Instead of relying on a centralized order-matching company or on-chain smart contracts, Alpaca uses its Liquidity Engine to manage pooled assets and enable instant, trust-minimized trading on Keeta.

The Liquidity Engine deterministically manages pool balances, pricing, fees, and LP ownership while Keeta’s native smart-contract layer is still under development.

Feature Status: Next Release

Manual Deposit & Withdrawal is coming in the next release.

  • Current Status: When you launch a new token, you automatically receive the initial LP Tokens. These are locked to ensure fair market stability and prevent rug pulls.
  • Future Update: Soon, any user will be able to add liquidity to existing pools to start earning fees.

What is a Liquidity Pool?​

A liquidity pool is a managed pool of assets controlled by Alpaca’s Liquidity Engine.
Each pool contains two tokens:

  • a Base Token (e.g. KTA)
  • a Paired Token (e.g. ALPA)

These tokens are held in a predefined ratio and priced using an Automated Market Maker (AMM) model.

We use the standard AMM formula:

x×y=kx \times y = k

This ensures continuous liquidity. As traders buy one token, the Liquidity Engine automatically adjusts the price of the other based on supply and demand.

What are LP Tokens?​

When liquidity is added to a pool, the Liquidity Engine assigns LP Tokens to represent ownership of that pool.

Think of LP Tokens as a system-issued ownership record rather than a smart-contract receipt.

  • Ownership: If you provide 10% of a pool’s liquidity, you own 10% of that pool.
  • Asset Claim: LP Tokens entitle you to your proportional share of the pool’s assets and accumulated fees.
  • Transferability: LP Tokens can be transferred or locked depending on pool configuration and safety rules.

How You Earn Fees​

Every swap on Alpaca DEX includes a small trading fee.
That fee is automatically added back into the pool by the Liquidity Engine.

The Creator-Defined Advantage​

Unlike many DEXs with fixed fees, Alpaca gives control to the pool creator.

  • Custom Fees: The Token Creator defines the liquidity fee percentage when launching a pool.
  • Auto-Compounding: Fees are not paid out separately; they increase the pool’s reserves directly.
  • Growing Value: As the pool grows, the value of each LP Token increases over time.
Proportional Rewards

Fees are distributed proportionally. If you own 10% of a pool, you are entitled to 10% of the total fees accumulated by that pool.

Withdrawing Liquidity​

Note: This feature will be enabled for the general public in an upcoming release.

When liquidity withdrawals are enabled, LP Tokens can be redeemed through the Liquidity Engine.

  1. Redeem: LP Tokens are submitted for redemption.
  2. Settlement: The Liquidity Engine calculates your ownership share.
  3. Receive: You receive your proportional share of the pool’s current assets (initial liquidity + earned fees).

Important: Because prices change over time, the ratio of tokens you receive may differ from what you originally deposited.
This is normal AMM behavior and is commonly referred to as impermanent loss.

Example Scenario​

  1. Deposit: You provide 100 KTA and 50 ALPA to a pool.
  2. Ownership: You receive LP Tokens representing your share.
  3. Activity: Traders swap assets and fees accumulate in the pool.
  4. Withdraw: Later, you redeem your LP Tokens and receive 102 KTA and 51 ALPA, reflecting your share of the accumulated fees.

Why Alpaca Uses a Liquidity Engine (For Now)​

Keeta does not yet support user-deployable smart contracts.
Alpaca’s Liquidity Engine bridges that gap by providing:

  • Deterministic AMM pricing
  • Transparent pool accounting
  • LP ownership tracking
  • Fee accumulation and distribution
  • Safety controls (locks, restrictions, launch protections)

Once Keeta’s native smart-contract framework is available, parts of this system may gradually move on-chain — without changing the user experience.