Crypto 101 · DeFi
Liquidity Pools Explained, With the wLKY/SOL Pool on Raydium
Abstract
A liquidity pool is a pot of two tokens that traders swap against; liquidity providers deposit both tokens and earn a share of trading fees. We use the wrapped Luckycoin (wLKY) and SOL pool on Raydium as the worked example, show its live size and volume, explain LP tokens and impermanent loss, and describe how the pool differs from a pool for an unbacked memecoin.
Keywords: liquidity pool, Raydium, wLKY, impermanent loss, LP tokens, AMM
1. In plain English
A liquidity pool is a shared pot that traders swap against. Someone has to supply the tokens in the pot, and those people are liquidity providers. A provider deposits both tokens of a pair, for example wLKY and SOL, in equal value, and receives an LP token that proves their share of the pool. Every time someone swaps, a small fee is added to the pool, so the provider's share grows.
The live pool below is the wLKY / SOL pool on Raydium, the main market for wrapped Luckycoin (wLKY) on Solana.
2. Reading the numbers
Liquidity is the total value in the pool, counting both tokens. It tells you how big a trade the pool can absorb without moving the price much. 24h volume is how much was traded; volume relative to liquidity indicates how busy the pool is. A small pool has a wide price impact: a modest trade can move the price noticeably, as the worked example in swaps and AMMs shows.
3. How Raydium pools work
Raydium's CPMM pools are standard constant-product pools, x * y = k, and providers receive LP tokens representing their share; fees accrue inside the pool and are realised when the LP tokens are redeemed [1, 2]. The pool's trading fee is split between providers and the protocol [3].
4. Go deeper: impermanent loss
Because the pool rebalances as the price moves, a provider ends up with more of the token that fell and less of the one that rose. If one token's price changes by a factor r against the other, a provider's position is worth this fraction of simply holding:
value ratio = 2 x sqrt(r) / (1 + r)
For r = 2 that is 0.943, about 5.7% behind holding before fees. Fees are the compensation; whether they exceed the loss depends on trading volume and volatility [2]. The loss is "impermanent" only if the price returns to where it started.
5. Why the wLKY pool is different
Many memecoin pools hold a token whose supply anyone can inflate. wLKY is a wrapped asset: each wLKY is meant to be backed by one LKY in reserve, and the bridge publishes a proof of reserves so the backing can be checked [4]. That does not remove market risk, but it changes the supply question, as explained in bridges and wrapped assets.
6. In Scrypt Wallet
You can hold wLKY and SOL in the same wallet and trade between them. Start from the Luckycoin price page for live data, or read Wrapped Luckycoin for the full design.
References
- Raydium (2025). Choosing a pool type. Raydium documentation: CPMM pools are standard xy=k constant-product pools; liquidity providers receive LP tokens. https://docs.raydium.io/user-flows/choosing-a-pool-type
- Adams, H., Zinsmeister, N., Salem, M., Keefer, R., & Robinson, D. (2020). Uniswap v2 Core. Whitepaper: constant-product automated market maker with fees paid to liquidity providers. https://uniswap.org/whitepaper-v2.pdf
- Raydium (2025). Protocol fees. Raydium documentation: how trading fees on its pools are split. https://docs.raydium.io/ray/protocol-fees
- Scrypt Bridge (2026). Proof of Reserves. Live page comparing native coins held in reserve with wrapped tokens outstanding. https://bridge.scryptwallet.io/proof-of-reserves
Common questions
How do liquidity providers earn?
They receive a share of the trading fees in proportion to their share of the pool, realised when they withdraw.
What is impermanent loss?
The gap between holding two tokens in a pool and simply holding them, caused by their relative price changing. It shrinks if the price returns.
General education, not financial, tax or legal advice. Figures are schematic. Protocol parameters are cited to primary sources and can change; verify against the linked source before relying on them.