What are liquidity pools. Liquidity pools are a kind of storage of funds locked on a smart contract and provided by users.
23 Jun 2022, 09:02
♻️ What are liquidity pools?
Liquidity pools are a kind of storage of funds locked on a smart contract and provided by users. These funds are used for swapping, depositing, savings and farming.
▶️ The size of the liquidity pool is measured in terms of TVL, the total value of assets locked in the liquidity pool.
▶️ Liquidity providers are users who add liquidity to current trading pairs in a current pool and derive LP tokens and rewards after they have staked these tokens. Other users get the opportunity to buy and sell cryptos easily without slippage.
▶️ If the liquidity pool is poor it could be hard for users to sell their tokens because no one needs them. Also, poor liquidity generates a high slippage.
What are the risks of liquidity pools?
▪️ impermanent loss
▪️ bugs in a smart contract
▪️ team’s permission to change the rules governing the pool.
▶️ Learn more in our Medium
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