Splinterlands - Liquidity Pools 101

In the daily Splinterlands SPS air drop there is one category of points that is associated to liquidity pools. Very specific to DEC liquidity pools. Today this post is to go over what liquidity pools are and how to partake in a DEC liquidity pool to earn airdrop points.

Crypto Exchange (Hive-Engine)

In Hive platform there is the Hive-Engine platform for people to make buy and sell orders for Hive or any other token that is open to trading on the Hive-Engine platform. Many 2nd layer tokens of Hive are available to trade on the platform. In addition many tokens outside of the Hive ecosystem also are tradable.

This type of exchange of trading one token for another is the most common financial platform most people are familiar with when trading tokens. Where buyers and sellers meet at bid and ask prices respectively. Hive-Engine primary token of reference is the Hive token. All other tokens posted gains or loses would be with respect to Hive.

When a buyer wishes to purchase let say SPS they can go to the SPS token to trade Hives for SPS. Or vise versa sell their SPS to get Hives.

In summary a trading exchange consists of buyers and sellers and the meet at a specific price in order to purchase or sell specific goods.

Liquidity Pools

(Courtesy of wiki.rugdoc.io)

Along the way some investors of crypto had amassed a large pool of assets and have wish to use it to earn interest. One simple way to earn interest is to provide loans, yet the effort in expanding and providing the loans were limited by how many people were willing to take a loan.

Whether it was to take out a loan or to buy and sell tokens the large whales wanted to find a way to utilize their assets to earn interest. This is where liquidity pools come in to play.

https://beeswap.dcity.io/swap?pools&search=sps

Link above will lead us directly to current liquidity pools related to SPS. The most common liquidity pool is a dual pair token pool. In a pool like DEC:SPS it means people who have an equal amount of DEC and SPS in terms of $USD they can bring those respective amount of tokens into the DEC:SPS pool to earn daily rewards. People bringing in the tokens into the pool are called liquidity providers.

Essentially the liquidity providers are putting in their assets into a pool to allow traders and investors to trade the token pairs at less degree of price swing and in larger quantities than as if they were just simply trading the tokens on Hive-Engine. There are a few benefits with this approach.

1. Liquidity providers can earn passive income with putting in their liquidity. This is a very good way of earning passive income.

2. Buyers of either token will not have to wait to get a good fill order price as there are more liquidity in the pool.

3. To add on top of 2. is that the slippage in price is lessen when trading with a liquidity pool instead of a normal trading market because the liquidity supply is usually larger than a specific sell order on the market.

Swaps

Within a liquidity pool of two tokens traders can swap one token they have for another token. Basic example is swap.hive : DEC

Let say I have swap.hive but I want to purchase DEC with it. I would go to the swap page and click "" sign. There I get a window stating how much swap.hive I want to trade for DEC.

At the current time I could trade 1 swap.hive for almost 238 DEC based on what the pool was offering. Here lies the power of liquidity pools. What I mean by this is trader who wishes to purchase DEC with swap.hive can now do so without waiting and with minimal price slippage. Where as in comparison at the same time on the open market the current buy and sell orders of DEC are limited by quantity given in bid and ask prices.

The liquidity pool minimizes the price range when a trader swaps their swap.hive for DEC of vise versa. At the same time since the liquidity pool is filled with both tokens the more tokens the pool holds there less of a price range when making a trade. In addition trader do not have to wait when making the trade as it is instant were as in a bid and ask market if the buyer is bidding at too low of a price it may not get traded and they will have to wait until a seller at the right price comes along. With liquidity pool the trade becomes instantaneous once executed.

Liquidity Pool Example Breakdown

In order for pools to amass a large sum of tokens there sometimes are rewards given for those who invest into the pool. In order to supply liquidity into the pool the user has to have an equivalent amount of tokens in equal value of each to stake into the pool.

In the swap.hive : DEC pool when you click "+" you will be given a new window with the info similar to snapshot above. There at the bottom left shows the equal ratio needed for you of each token in order to be stake into pool. At the time it would take 1 swap.hive and 238.679 DEC to be placed into the pool in order to stake into the pool. In fact the swap.hive to DEC numbers is a ratio where by if I was to put 100 swap.hive staked into the pool I will need 23,768.913 DEC in equivalent value also staked to be accepted in the pool.

In the snapshot above since I do not have enough DEC to put in the pool with the equivalent in value as 100 swap.hive at the time I would need to reduce my swap.hive that can be placed into the pool with the same ratio of DEC. This ratio is not fix and changes continuously based on the actual prices of both tokens present prices.

Once you input the equivalent swap.hive and DEC into the pool and keep the assets inside the pool a couple rewards incentives are earned.

The benefits are:

1. Earn air drop points to your total for SPS daily air drop. The points are doubled for those who have their DEC in a liquidity pool.

2. Earn rewards every 24 hours based on the rewards pot in the pool. In the swap.hive : DEC pool a 0.732% APR is earned and 43.26% BXT token APR is earned.

In short there are incentive to participating in a pool and they are earned and paid out on a daily basis.

Conclusions

A normal trade with buyer and seller have limitations. Limitations such as how much a buyer can buy, the price for those specific amount, and sometimes the trade does not happen instantly. With DeFi in crypto there is a more efficient way for traders to make trades that would make the trade go through instantly with a lesser degree of price difference when the pool is large.

Those people who partake in the pool by staking the two tokens that are being traded earn incentives for keeping their tokens in the pool. They are basically providing the liquidity needed for traders trade in and out of the one of the two tokens within a pair. In addition to earning incentives for staking tokens in pools the assets are accessible to the staker at all times. This means if they no longer want to participate in the liquid pool they can remove their staked swap.hive and DEC when ever they choose and the process of removing liquidity happens instantaneously.

As mentioned earlier in the post we are focusing on how to earn air drop points for DEC liquidity pools so to end the post below are the current pools that qualify as a DEC liquidity pool:

Until next time thanks for reading!!!

If you are interested to learn more about Splinterlands please go through some of my other posts. Order is from newest to oldest posts:

Splinterlands - Securing Your Cards From Hackers

Everything About Dark Energy

All You Want To Know About Reward Chests

SPS White Paper Cliff Notes

Helpful Links for New and Veteran Players

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