How many ways are there to make your fortune these days? Of course, we are not only talking about fiat money, but also about cryptocurrency assets. Everyone is probably familiar with staking, not just “familiar” with it, but using one way or another to store it. But have you used liquidity pools? And before we learn about their usefulness in Decimal Smart Chain, it’s worth examining the topic of liquidity. How does it work and what does the term mean? Continue reading!
In simple terms, a token’s liquidity is its demand in the market when neither supply nor demand outweighs the other. Therefore, a token is considered liquid when there is a supply and demand for it that does not materially affect the value of the token. For example, Bitcoin is a liquid token and its circulation in the crypto market does not significantly affect its value. In addition, its value is determined by other parameters.
Liquidity pools are a special model for freezing tokens on a smart contract. Pools are of course not real token pools, but special contracts on a blockchain, with two types of tokens provided by special liquidity providers.
Liquidity providers are users who provide tokens to the pool for exchange, in return for which they receive liquidity pool tokens (LP).
Liquidity Pool (LP) tokens – these are special tokens that serve as confirmation for token providers. That is, when a provider creates a pool, he receives this confirmation with information about the number of assets in the stack and in the future the user can receive a reward by LP in the form of a small commission for each exchange of tokens. These tokens are stored in the wallet used to provide liquidity.
Liquidity pools allow any user to become a liquidity provider and receive a percentage of the transactions within the pool. But liquidity pools are also a big part of DEX’s operation, allowing token exchanges to be exchanged quickly and without third-party support, without paying possible expensive fees.
Since the price is determined by the ratio of assets in the pool, the user does not spend much on commissions, as can happen with regular transactions on exchanges or CEX. In addition, liquidity pools help small projects or tokens that are not very popular, creating a kind of artificial liquidity.
Such a system as a liquidity pool perfectly solves the problem of distributing wealth among participants according to their invested share. For example, if several participants have created a pool, the funds received will be automatically divided between them based on the number of tokens they have deposited into the pool.
Liquidity in Decimal Smart Chain is implemented by hosting the DEL token in pairs with other tokens.
Let’s take DEX dels.io as an example, since decentralized exchanges with liquidity pools work on a similar principle. That is, liquidity providers create pools with both tokens of equal value to balance the pairing. Traders who want to make a swap transaction change the ratio between the tokens in the liquidity pool. But there is a direct correlation between the price in the pool and the amount of one or another token. A buy/sell order transaction changes the liquidity ratio. The price changes when the volume of the token changes, but to keep the price in the pool, increasing the liquidity pool helps.
Liquidity pools will work on a similar principle at DSC. Liquidity providers will pair a pool with DEL tokens or other Decimalchain based tokens and other cryptocurrencies.
Liquidity pools are of interest to the cryptocurrency community as liquidity providers receive bonuses in the form of commissions for transactions in the pool. At the same time, users are given the opportunity to trade cryptocurrency at market value and with the lowest commission, as well as rare cryptocurrency.
In the crypto industry, you always have a wide variety of options and tools to choose from, so it’s important to choose wisely, check different sources, and compare features.
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