Terraswap is a Uniswap-based protocol for automatic market making (AMM), brought to life with smart contracts on the Terra blockchain. Mirror uses Terraswap to create UST trading pairs with mAsset tokens and MIR. This allows for decentralized on-chain exchanges of different assets interacting with Mirror Protocol.
Terraswap creates automated markets for token pairs (or owned Terra coins, such as UST), called pools, which allow users to exchange one asset for another within the network. Pools support the balance of both assets. Users can provide liquidity to these pools in exchange for LP tokens, bringing rewards. A more descriptive explanation of LP tokens and their interconnections with Mirror can be found here.
Fees for trading through pools
To compensate for the costs of being a liquidity provider, Terraswap takes a fee for every trade. The fee returns to the pool as a reward for LP token holders and can only be withdrawn through burning of LP tokens.
On Mirror, every liquidity pool in a pair with mAssets or MIR has a fixated fee of 0.3%. This fee is taken from the trader and returned to the mAssets, MIR or UST pool, depending on the direction of the trade deal.
Also, if an asset for trade is a native token, such as UST, Terra will take a fee (not controlled by the Terra protocol) for the transfer.
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