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Mechanics of liquidity pools
How liquidity pools work and their importance in DeFi
What are liquidity pools?
Liquidity pools are a shared token pool where users can add their assets and thus provide liquidity for decentralised exchanges (DEX). This allows users to earn transaction fees by making deposits into the pool.
How do liquidity pools work?
When a user adds tokens to the pool, he receives liquidity tokens that represent his share in the pool. These tokens allow users to earn transaction fees that are distributed proportionally among all pool participants.
Advantages of liquidity pools
Liquid pools provide liquidity without the need to create traditional buy and sell orders. This simplifies the trading process and allows users to exchange tokens quickly.
Liquidity provision process
The process begins by selecting a token pair, after which users can add their tokens to the pool and determine the price range. This provides the liquidity that is necessary for decentralised finance to succeed.
Revenue - commissions
We will act as an exchanger who receives a commission for exchanging one asset for another within a certain price range.
  • The process of working through an example:
    • We analyse the market and according to the result we choose the liquidity pool ETH|USDT 0.05%.
    • We determine the price range (-1.06% and +1.04%). As long as the price is in these ranges, we will receive a 0.05% commission on each transaction.
    • We deposit funds in the required proportions into the liquidity pool.
    • If the price is out of the range - we stop receiving commission, so we either wait for the range to return or move it.
    • After the time has passed - we collect the commission, and put it back into the pool, to maximise profits.
    • When we need to withdraw funds to investors, we take our share out of the pool and make a payout.

Why DeFi and pools

Key numerical indicators for liquidity pools and DeFi as a whole
  • $125 B

    Indicator of total liquidity blocked in DeFi protocols
  • $3 T

    Annual transaction volume in DeFi protocols
  • Share 3%

    The percentage of the entire cryptocurrency market capitalisation that is attributable to DeFi
  • $3.44 T

    Total volume of cryptocurrency market capitalisation
  • 40%-50%

    Average annual growth rate of the DeFi sector market
  • 50%+ APY

    Average annual yield in liquidity pools
Effect of change in asset price
No matter if the price of an asset is rising or falling, the commission depends on the trading volume and the price of gas. The higher the volume, the higher our commission
When the price of an asset falls
If the price of an asset goes down, we get a commission from the pools, which slows down the fall. In total, we lose less than the entire market.

Example: ETH price fell by 10% during the period, but we received commission from pools 3% = 7% loss, instead of 10% your way to a fabulous Sunday with yoga to make you feel great.
When the price of an asset rises
If the price of an asset goes up, we get profit from the growth and additionally commission from the pools. In total, we get more than the whole market.

Example: ETH price grew by 10% over the period + we received another 3% commission from pools = 13% profit instead of 10%.
Principal Risks
The main pool risks that any liquidity provider will face are presented.
  • Impermanent loss
    Occurs when the price of tokens in the pool changes from when they were added. This results in a decrease in the value of a share in the pool relative to a simple purchase
  • Hacking a smart contract
    Liquidity pool smart contracts may contain bugs or vulnerabilities that hackers can exploit to steal funds
  • Time costs
    Related to the need for constant market monitoring, analysing profitability, studying protocol conditions, liquidity management and quick reaction to changes
  • Fluctuations in commissions
    Some pools may not generate sufficient trading volume to compensate liquidity providers for the impermanent loss of liquidity
  • Coin volatility
    The high volatility of cryptocurrencies can lead to sudden changes in the value of tokens in the pool, increasing the risk of impermanent loss or rapid depreciation of assets
Why do you need us
The graph shows the profitability of one of our clients for the year
  • We have more than 2 years of market experience and we know how to deal with all the risks described and we are in the business of maximising profits
  • Our strategy allows us not to lose out on market growth, and to offset impermanent losses entirely by using different protocols.
  • We use safe protocols that have been on the market for several years and are regularly audited.
  • We choose liquidity pools where there are large volumes, in order to nullify this risk, from them we take only the most efficient ones.
  • We use coins from the top 20 coinmarketcap, which have low volatility.
  • We take care of the full range of analysis, management, monitoring and control services, all you have to do is make a profit.
Our advantages
We aim for stable capital growth with minimal risk, we do not trade crypto assets, futures, nfs, etc.
  • Analysis and strategy
    Properly constructed strategy and choice of instruments allow to receive returns above the market value
  • Position monitoring
    Constantly monitoring the market and making adjustments to the working range as necessary
  • Multi-signature
    All our transactions are signed using multiple devices to avoid fraudulent activity
  • Safety
    We use safe protocols that have been on the market for several years and are regularly audited
  • Anonymity
    Maintain anonymity of client funds if necessary, but do check for ‘dirty’ money
  • Daily report
    We provide daily reporting on the flow of funds, where the client sees all the information he needs
We work with a contract
Our investment fund offers transparent and safe co-operation based on contractual obligations. All working conditions, rights and obligations of the parties are detailed in the contract, which guarantees the protection of your interests. We strive for long-term and mutually beneficial relationships, ensuring reliable management of your investments.
Stages of interaction
Only long-term co-operation is of interest, so we try to take into account all the wishes of the investor
1
Signing of the contract
Sign the cooperation agreement, after which you make a transfer of funds to our wallet
2
Strategy selection
We pick a strategy, put cash into a liquidity pool, and determine a price range
3
Daily report
We give you access to a file where you can track statistics for the entire period of our cooperation
Any other questions?
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