DeFi Liquidity Pools

Those who have an idea about cryptocurrency must have heard the word mining. Many may have a good idea, some have light thin. Those who do mining are called minors. Minors receive commissions or earnings from transaction fees.

Mining requires good quality computers as well as low cost electricity. This is because the devices used for mining consume a lot of electricity. So if the earning from mining goes to the cost of electricity, then there is no benefit in mining.

Again, mining is not legal in many countries. So, it is not possible for everyone to earn by mining.

After reading the brief discussion above, you may be wondering what is its relation with Liquidity Pool again?

What is the Liquidity Pool that I am going to discuss today or how to use it? Once you understand that discussion, you too can get a taste of mining by applying this method. This means that you can earn something in the same way that minors earn from transaction fees.

So let's start today's discussion.

Currently, there are more decentralized exchanges, especially Uniswap. Because they are the first to use the concept of Liquidity Pool in the right way. You will also get the benefit of Liquidity Pool in Justswap or Centralized Exchange such as Binance.

You will find two features in Uniswap, one of which is "Swap" which has already been discussed in the Uniswap usage guide.

The second feature is "Pool". You can use this feature to become a Liquidity Pool provider. Through which you can earn something from the transaction fee. In other words, you will get some taste of mining without mining.

What is Liquidity Pool?

In short, what is Liquidity Pool? However, it can be said that this is a method where the tokens are locked in a smart contract. And those tokens provide liquidity for trading.

There may be a little complication in listening to the subject. But no problem, I hope the detailed discussion will remove all the complications.

Before we know how Liquidity Pool works, we need to know about Automated Market Making.

Read more: Decentralized Finance (DeFi)👇 https://read.cash/@Kawser199/decentralized-finance-defi-22136c7d

Why Liquidity Pool?

We are all familiar with centralized exchanges such as binary, cocaine or coinbase exchanges. You will see a word book on all these exchanges. Where buyers on one side and sellers on the other side have their warders.

Buyers will always want to buy at a lower price, while sellers will always want to sell at a higher price.

Now suppose a buyer wants to buy some BNB from a finance exchange. A seller on the other hand wants to sell some BNB in ​​the same market.

Now the buyer wants to buy BNB for 25$. Cellar, on the other hand, wants to sell his BNB for 28$. Now if the buyer changes his decision and his purchase price changes from 25 to 26.5 and the seller changes his decision to 26.5 $ and sells, then that word will be fulfilled.

Now he thinks that Bayer does not want to change his decision, on the other hand, Seller will not change his decision. What will be the market position at that moment? Market maker enters the market at such a moment.

The market maker here gives the two their preferred price. That means this market maker provides liquidation. They don't have to sit down to buy someone because they provide liquidation. The market is always active.

You must have seen that there are many exchanges where you have to sit with buy order or sale order for a long time. And the reason is that there is no good liquidity provider in those exchanges.

How to use Liquidity Pool?

Hopefully, you have got some idea of ​​what Liquidity Pool is. Now let's try to know how to earn using this Liquidity Pool.

Liquidity pool services are available on centralized exchanges such as Binance or Distributed exchanges such as Uniswap or Justswap. You too can become a liquid provider using this feature. And you can do some earning by providing this liquidity.

If you have swapped or exchanged tokens from Uniswap, you have to pay a fee to complete the swap. And some of the fees you pay are paid to those who provide liquidity.

That means you have ETH and some ZRX tokens. If you want, you can become a liquidity provider with these two coins.

Suppose you have 1 ETH with a current value of 300. Now if you want to keep this 1 ETH liquid in the pool, remember to keep ZRX with the coins you keep with it, then you have to keep ZRX worth 300.

This means that the pair you keep must have the same value.

So I assume you put 1 ETH and 600 ZRX, which together cost 600.

Now if someone wants to sell some ETH and take some ZRX, out of your 600 ZRX, he will be given ZRX as per his demand and instead ETH will be credited to your pool account.

Suppose that user sells ETH and takes 300 ZRX. Then ETH of 300 ZRX will be credited to your pool account according to the price when you take it. And 300 ZRX from your pool account will be given to him.

According to this calculation, the amount of ETH in your account will increase, since he sold ETH and took ZRX. On the other hand, the amount of ZRX will be reduced.

And you will be given some part of the fee that will be deducted from the user while doing this swap.

Let's try to understand from the sample of the screenshot how to use the Liquidity Pool.

With Uniswap we will show how Liquidity Pool works.

For this we will first enter the website of Uniswap. Then click on the Pool option and it will look like the picture below. From here click on Add Liquidity option.

If you click on the Add Liquidity option, the following image will appear. I picked ETH and ZRX from here. Since I have 0.10 equal to ETH here. So I can't put any coins in the pool more than the current value of the ether that I choose. So here is 0.0940019 ETH in the picture below and the price of that ether is 85 ZRX.

Now if I want to add liquidity to this pair, clicking on Approve ZRX will show the transfer option, just like other transfer times. When transferred, the Supply option will be active. Then you have to transfer once more by clicking on Supply.

I am sincerely sorry that I was not able to add liquidity to the pool here for the high ETH fee.

However, I have collected some pictures online. Which is given below. Where shown is how you will see your earning.

However, now again we go back to ETH / ZRX once more.

Take a look at the screenshot above once again. You will see that the 0.0940019 ETH that I have chosen to keep in the 85 ZRX pool according to the price of that ether is only 0.03% of the total Liquidity Pool. Which is shown in the screenshot above.

Now let's look at the picture below. Showing 137.80 in Fees (24hrs) room here. In other words, this fee has been paid to the liquidity providers in 24 hours ETH / ZRX swap. The amount of ETH / ZRX that I am keeping now is 0.03%. So if I provided liquidity, I would get 0.03% of this fee. That is 0.03% commission of $ 137.80.

This is not going to be the same every day. Swaps will increase and decrease. In total, you will have as many percent of the total liquidity shares. You will get a commission of that percentage of the total fee.

Take a look at the history of this person collecting pictures from online. Here 0xMR / ETH where 0xMR 25000 and ETH 2.16297 have been selected for liquidity pool. Here his pool share is showing 26.95%. This means that from the swap in this pair, he will get 26.95% of the fee that the liquidity providers will get.

In the picture below, he received a commission of 20 (as of 24 hours) in that day.

He received a commission of just over 57$ 3 days after joining Liquidity Pool Provider. This means that you will not receive the same amount of commission every day, which I mentioned earlier.

Now come to the final stage. Notice again in the picture below that his current amount of 0xMR is 19091 and his amount of ETH is 3.01279. That is, his 0xMR decreased but his ETH increased. This is the reason I discussed at the beginning. If you don't notice, read the top again a little better.

Is Liquidity Pool For You?

If you want to hold a certain coin for a long time, then Liquidity Pool is not for you.

Because if you want to hold ZRX for a long time, if you leave ZRX in Liquidity Pool, the amount of ZRX decreases and in this direction the price of ZRX increases. But the price of ETH does not increase in that proportion but here your loss will be as USD.

So in this case Liquidity Pool should not be used for you.

And if you don't have an ETH hold or a ZRX hold, you can take part in the Liquidity Pool. You can get a taste of mining with the Liquidity Pool part i.e. you can take commission from the transaction fee.

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