Liquidity pools are pools of tokens locked in smart contracts that provide liquidity on decentralized exchanges, in order to offset the problems caused by illiquidity typical of such systems.
In simple words, these are crypto assets that are stored to facilitate trading of trading pairs on decentralized exchanges.
Trading on standard crypto exchanges is based on the "order book"model. Traditional stock exchanges work in a similar way.
In this "order book" model, buyers and sellers get together and place their orders. Buyers, also known as" bidders", try to buy a certain asset at the lowest possible price, while sellers try to sell the same asset at the highest possible price.
In order for the auction to take place, the buyer and the seller need to agree on the price. But what happens if there is no one on the market who is ready to place their orders at the right price? What should I do if the tokens that you want to purchase are not enough? This is where market makers come to the scene.
The term liquidity has been the biggest problem for cryptocurrency and blockchain projects for many years. In general, the problem of liquidity also arises in the financial markets. This is what led to the emergence of decentralized finance and decentralized liquidity.
It is known that liquidity is the ability to quickly turn assets into their cash equivalent at good prices. There are highly and low-liquid values, as well as illiquidcies. The concept of liquidity can be applied to any firms, securities, cryptocurrency, conventional currency, etc.
In the classical financial structure, such services are provided by banks that allow you to make deposits Free moon https://freemoon.finance/ The site that has acquired the assets already independently disposes of the funds for earning by giving a specified percentage to the depositor. When creating a new pool, the first liquidity provider determines the starting coin exchange rate within the created system. Each participant must deposit an equal amount of coins of both types. If, when comparing with global trends, a strong price difference within the pool is recorded, then arbitrage is possible. Then the liquidity providers risk losing all of their invested capital. Maintaining a balance between coins is one of the main conditions for the system to work.
Liquidity on the cryptocurrency market - the question is very important. If you bought a coin and can not sell it at the right moment, even the most profitable investment becomes very risky. Therefore, it is important to learn to determine the cryptolicity of Bitcoin and Altkoinov.