When the liquidity pair is created the creator deposits a certain amount of the newly created project tokens with another ERC token. For this example Ethereum on the Ethereum Network.
10 $X7R and 10 $ETH was deposited into the liquidity pair. Thus 1 $X7R is equal to 1 $ETH.
When the next buyer comes in with 1 $ETH they will receive 1 $X7R (excluding exchange fees, AMM calculation etc) and the liquidity pair will now have 9 $X7R and 11 $ETH meaning 1 $X7R is equal to 1.22$ETH.
With Xchange and to note you aren't required to deploy your liquidity pair with leverage but below will show the advantage of the initial token launch by doing so.
In the above example the creator deployed their liquidity with 10 $ETH if they had used an Xchange Initial Liquidity Loan they could borrow up to 10 times this (if there is enough capital in the lending pool to do so).
This would mean at launch on Xchange there would be 10 $X7R and 100 $ETH in the lending Pool. The value of 1 $X7R is worth 10 $ETH where it was originally worth only 1 $ETH deploying on another exchange.
By deploying your project with leveraged liquidity it gives a lot of benefits to the project, the investor and the opinion of your project token;
- Less volatility in trading where early holders can easily pump and dump for fast gains
- More stable market cap attracting better investors
- Less initial liquidity needed when creating a pair
- Higher trading volume
