Liquidity pools could be seen as the lifeblood of decentralized finance. They enable decentralized trading, lending and borrowing by eliminating the need for an order book or central party. These are typically automated systems based on smart contracts that adjust token prices based on supply and demand. Without liquidity pools, decentralized exchanges (DEXs) could not function properly.
In this article, we will show you how to lend your tokens to liquidity pools and earn yield with OKX DeFi. We also take a closer look at the V3 liquidity pools on OKX DeFi, which allow you to lend tokens within custom price ranges and achieve better capital efficiency in market making.
How market making works
Market making in DeFi is essentially about providing liquidity to DEXs. They provide assets that people want to trade – like ETH or SOL – and in return get a discount on trading fees. Pretty cool, right? When you engage in market making in DeFi, you directly contribute to making the entire crypto ecosystem smoother and more efficient. They help ensure there are always enough assets to trade, keeping price fluctuations under control.
An introduction to OKX DeFi
OKX DeFi allows you to manage all of your DeFi investments directly from the OKX Wallet, serving as a powerful gateway to protocols such as Aave, Curve, Compound, Yearn and Arbitrum. OKX DeFi allows you to earn income from your assets either by staking tokens or by providing liquidity to DeFi protocols. The OKX DeFi interface includes features that make it easier than ever to make money in DeFi, such as: B. One-click deployment and helpful CertiK scores let you assess which protocols best suit your risk tolerance. We also automatically identify opportunities for you to earn income based on the assets you hold in your OKX Wallet. We also recently added V3 pools to OKX DeFi, helping you improve capital efficiency in market making.
V3 liquidity pools
V3 liquidity pools allow you to set price ranges that you want to be exposed to when providing liquidity, resulting in better capital efficiency. For example, stablecoins like USDT and USDC are typically worth around $1. Therefore, it makes no sense to provide them with liquidity at different prices. You can get a much higher return by providing liquidity in a narrower range, e.g. B. 0.995 to 1.005. By setting custom price ranges, you can also manage price fluctuations and sudden drops in liquidity. With V3 pools, your assets are automatically swapped when the price approaches the top or bottom of your range. This is done to maintain pool liquidity and help manage temporary losses. Here are some examples:
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If you provide liquidity to an ETH/USDC pool in a range of 1,000 to 2,000 USDC per ETH, your ETH will be exchanged for USDC when ETH approaches 2,000.
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The opposite happens when the price of ETH approaches $1,000. In this case, your USDC will gradually be exchanged for ETH.
Recommended price ranges
V3 pools on OKX also dynamically suggest price ranges based on risk and token volatility. These price ranges are updated in real time based on market conditions and users can choose between Safe, Standard and Expert price ranges.
An image showing an example of price ranges for liquidity pools with OKX
Get started with OKX DeFi
On the OKX website
Create an OKX wallet on okx.com/web3 and go to /web3/defi.
To access V3 liquidity pools, go to Explore > Multiple Cryptocurrencies > V3.
An image showing how to access V3 liquidity pools on OKX.com
On the OKX app
To get started with OKX DeFi, download the OKX app, go to the wallet and go to the “DeFi” tab at the bottom of the screen. You will notice that there is a search tab at the top of the screen where you can search for opportunities to earn income based on assets or protocols. To access V3 liquidity pools, go to Multiple Cryptocurrencies > V3
An image showing how to find V3 liquidity pools in the OKX app
Disclaimer:
THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO PROVIDE ANY INVESTMENT, TAX OR LEGAL ADVICE, NOR SHOULD IT BE CONSIDERED AN OFFER TO BUY, SELL OR HOLD DIGITAL ASSETS. DIGITAL ASSETS, INCLUDING STABLECOINS, INVOLVE HIGH RISK, CAN Fluctuate HIGHLY AND EVEN BECOME WORTHLESS. You should carefully consider whether trading or holding digital assets is suitable for you given your financial situation. If you have any questions regarding your specific circumstances, please consult your legal/tax/investment professional.
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