How do liquidity pools work? · EARN PASSIVE INCOME WITH DEFI THROUGH MARKET MAKING

How do liquidity pools work? · EARN PASSIVE INCOME WITH DEFI THROUGH MARKET MAKINGSkip to content

EARN PASSIVE INCOME WITH DEFI THROUGH MARKET MAKING

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⁠⁠Why do we need liquidity pools?⁠⁠ ⁠⁠Why can’t we just reproduce the traditional system in DefI?However, we can currently become too expensive, market makers can become illiquid. The current ETH blockchain is slowScaling solutions add additional steps⁠⁠⁠⁠⁠ ⁠⁠How do liquidity pools work?⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠Target – The ratio between the tokens stays close to 1Liquidity Pool – Ratio determines the price⁠⁠⁠Larger liquidity pools have less slippage because they can handle larger trades⁠⁠⁠Take traditional order book market making and automate it (AMM).Provides incentives for participation through rewards⁠⁠⁠

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