Professor Ape: Lesson on LP Pools
TO WHO IT MAY CONCERN ABOUT LP POOLS
WHAT IS UP PEAKD? This is your favorite streamer ApeOfWallSt bringing you a in depth article on Liquidity Pools and the terror of Impermanence Loss.
Before we begin into this lesson on LP pools and IL, I would like to introduce myself to you guys who DO NOT know me. I am one of the many SplinterlandsTV streamers which is where i spend majority of my time if i am not streaming on twitch on my personal channel or playing SPL or other video games. I began my SPL journey on tron network when Steem Monsters rebranded to SPL. I used to be admin of a telegram group called DiviHunters where we administer and act as middleman for P2P trading. I have been through many many cycles of crypto including NFT bubbles, Casino mining, farm bubbles, shitcoin, rugpulls, etc.
Let us begin our lesson as I put on my professor gear which will transform me into Professor
What is a liquidity pool?
A liquidity pool is a digital pile of cryptocurrency locked in a smart contract. This results in creating liquidity for faster transactions. A major component of a liquidity pool are AMMs.
(defined by coindesk)
Errrrrrrrrrr i have a monkey brain. Can you simplify this for me?
Sure, this basically means that Liquidity pool are the foundation behind the current Defi Ecosystem. In exchange for providing liquidity, you the provider of the lp will earn rewards from the AMM or automated market makers which shares a portion of the fees they make.
Liquidity pools like the definition mentioned, is basically a collection of funds locked in a smart contract. When liquidity is provided to the pools, what happens is that these LP pools are used in many ways such as facilitating decentralized trading, lending, and other functions. Liquidity pools are the backbones of many DEX.
How do we make LP?
Users can make LP by taking two tokens of equal value to create a market. Some pools requires staking while other pools require just holding the LP you have created.
In exchange for making LP, you will earn trading fees from the trades that happen in that pool, proportionate to the share you have contributed. You may also earn other rewards that is provided by the maker of the LP rewards pools.
What is an example of LP?
We can hit up a DEX or AMM to give a visual example.
Lets add some liquidity to the DEC:SPS pool. Please do not get confused. When we add liquidity to the DEC:SPS pool, it is the SAME if we called the pool SPS:DEC. It is interchangeable and does not affect what pool you join. (IT IS THE SAME GODDAMMMMMMMM POOL)
Okay, let's say I want to add 3000 DEC. At the time of writing, the quote of SPS to match that 3000 DEC is 24.04911 SPS
As you can see in the picture, the yellow scribble scrabble. It shows you the rate of sps per dec AND dec per SPS which is the same like we have said earlier.
I hope you guys had a better understanding of Liquidity Pools than when you before you began reading.
We will be releasing a second volume on LP Pools called "Terror of Impermanence Loss" tomorrow night. This article will cover exactly how Impermanence Loss works and the risks involved.
So if you like what you have read, please give me a like and follow on PeakD.
I also have other socials you can follow if you would be so kind.
*Disclaimer: This is not financial advice, but rather an informative article. LP pools are high risk and I do not advise people joining unless they have done their research"