RE: DeFi Liquidity Pools ! How do they work?
Hi @the-prithvi
Thanks for bringing up this topic. Understanding what liquidity pools are, how do they work and why do we need them in the first place is a must for anyone who want to be involved in DeFi. Wouldn't you agree?
(actually, I'm not even sure if platforms like pancakeswap, uniswap or robiniaswap should be considered DeFi. Simply because those seem to be centralized projects. I wonder why don't we call it CeFi instead? Any idea?)
Back to main topic:
on a centralized exchange we would have to first wait for someone to match our trade price and then the trade occurs but In a liquid pool, they can do this by just depositing their funds (bsteem) and then they are rewarded over time based on the amount of funds deposited.
I find it quite difficult to understand. If we do not need to "match" seller with buyer, then what dictate price of the token? Usually those are buyers and sellers.
Solid read. Upovted already :)
ps.
could you perhaps check out my latest post (MINING RobiniaSwap (RBS) Tokens? Could you be making one of these mistakes?) and help me bring more traffic to it by resteeming this publication?
Cheers, Piotr
hii @crypto.piotr ,
In a centralized exchange, you can sell the token at any price if the buyer is willing to purchase it at that price. To answer your question, I think that the token price depends on the demand for that coin . This means if there is high demand then the price of the token increases and if low demand then the price of the token decreases.
In a pool exchange, the price is determined by supply and demand also in comparison with the paired token.
Also commented and resteemed your post on your latest post !
hi @the-prithvi
I've small question related to liquidity pools and impermanent loss.
I'm trying to wrap my head around it and based on my understanding:
in that case I would need 5000 RBS tokens and 1000 usd worth od BUSD. Is that correct?
Now, what would happen if price of RBS would:
a) scenario one: RBS would drop down to 0.1$ (50% drop)
b) scenario two: RBS would go up to 0.4% (100% increase)
I presume that the moment I exit liquidity pool, then I would end up still with 1000usd worth of BUSD, but amount of RBS tokens would be different.
Now, my question is: how many RBS tokens would I have at the end of the day (depending on the scenario).
Enjoy your weekend buddy,
Yours, Piotr
Hii @crypto.piotr,
This is a good question, The moment you exit the pool you will receive the 1000BUSD that were locked during the staking period.
The amount of tokens you have at the end of the day depends on the apr(annual percentage rate) throughout the day. The apr is based on how many transactions your tokens have validated throughout the day. The more tokens locked the more the chance of gaining rewards. I am not sure how the price of RBS token will affect the current apr.
The current apr for BUSD is: