Concept

Base & Quote Tokens

Base and quote are two concepts that will be mentioned frequently. Two easy ways to distinguish between them are:

  • In a trading pair, the base is always the token before the hyphen, and quote after

  • In transactions, price refers to how many quote tokens are needed in exchange for one base token

For example, in the ETH-DAI trading pair, ETH is the base token and DAI is the quote token

Liquidity Provider Fee

A small amount of transaction fee is charged on every trade. This fee is called the liquidity provider fee and will be distributed to every liquidity provider based on their proportional stake in the capital pool.

More specifically, liquidity provider fees are collected from what buyers received and distributed to liquidity providers who supplied this kind of asset to the capital pool. In other words, liquidity providers are rewarded in the same asset denomination.

For example, when traders buy ETH tokens with DAI tokens, liquidity provider fees will be charged in the form of ETH tokens, and distributed to liquidity providers who deposited ETH tokens into the capital pool.

When traders sell ETH tokens for DAI tokens, liquidity provider fees will be charged in the form of DAI tokens, and distributed to liquidity providers who deposited DAI tokens into the pool.

System Fees

A system fee is also collected from what buyers received and will be directly transferred to the provided address. The system may be a development team, a foundation, or a staking decentralized autonomous organization (DAO).