Note: This article aims to contribute informative content for you. I present this, based on my opinion. I am not responsible for your gains or losses. When you finish reading, do your study, and invest at your risk. Projects with high risk, beware!
The cryptocurrency world is full of surprises. I am increasingly surprised that I research new cryptocurrencies/tokens. We have several consensus protocols, involving the operation of a cryptocurrency network, ranging from the most well-known: Proof of Work, Proof of Stake and Proof of Capacity to its variants as Delegated Proof of Stake. We also have the most unusual ones like the Proof of Person that I met recently.
In this article, we are going to talk about the Proof of Liquidity that has recently caught the attention of some people. So far, gathering all the information I got, I know that this term may fit an economic model and not a consensus protocol/algorithm.
What is POL — Proof of Liquidity?
This consists of sending 100% of the supply of a token or most of it to a decentralized exchange with automated liquidity, in the case the most used in the ethereum space is Uniswap, but I have seen similar exchanges in other blockchains as in the case of Oikos Swap in the TRON space.
A little about Uniswap
Uniswap is an automated decentralized exchange that works on the Ethereum network, through smart contracts. This means that there are no intermediaries or centralization of entities in the exchanges made. Also, it is a completely open-source and anyone can audit it.
Perform ERC-20 / ERC-20 or ETH / ERC-20 exchanges through UniSwap’s intuitive, simple, and well-designed interface. We can consider this DEX as a fundamental and innovative part of the DeFi ecosystem. It is possible to connect to this application through Metamask, WalletConnect, Coinbase Wallet, Fortmatic, or Portis wallets.
The fees at uniswap are 0.3% which goes to those who have provided liquidity. Anyone can provide liquidity for an exchange, involving Tokens / Tokens or tokens / ETH, and earn a percentage directly proportional to the liquidity provided. If you are interested in becoming a liquidity provider, find the most profitable pool for you at this link.
The price of an asset is defined based on the exchange rate where, for example, in an exchange between ETH / ERC-20, the amount X is divided by Y contained in the size of the liquidity pool. Remembering that the price is always estimated, and you can receive a little more or less during the exchange.
Proof of Liquidity Tokens
A summary of the Proof of Liquidity tokens I met:
Unipower — It is the first token I found, researching Proof of Liquidity, and one of the first, if not the first to use this term and consequently this economic model. Holders are encouraged and earn passive income through dividends. More info here.
Unidollar — Combines Proof of Liquidity with Proof of Stake. 2% of each transaction is distributed to stakers, in proportion to the value of tokens they left in staking. More info here.
Unibomb — Deflationary Token with Proof of Liquidity. Tokens burn 3% a day in the liquidity pool, pressing the price. Also, you have the option to stake your tokens. More info here.
I know there are more PoL tokens out there. Leave in the comments some New that I don’t know. Perhaps UniHex and $Liquid token (TRON) (Very Suspicious).
Final considerations
Proof of Liquidity is not a network consensus protocol or algorithm, but an economic model. All projects based on proof of liquidity, in my opinion, are social experiments. DAPPS that involve these types of tokens are generally focused on generating passive income or gambling. That is, they are projects of very high risk and it is very common to have scams in this space. I’m not saying that ALL Proof of Liquidity projects are scams, but they are very risky.
A malicious developer could very well simply remove their profits and share from the liquidity pool at Uniswap and make the famous exit scam. Some of the projects mentioned above, to get around this, use decentralized liquidity pools through smart contracts. That is, it gives a greater “security”, but, again, it is very risky.
Anyway, these are my brief considerations about PoL tokens. Leave your comment here on what you think of this type of project. Interesting? Could it be better explored? Leave it in the comments.