AlgoBlocks is a platform solution that combines all of the market’s Decentralized Finance (DeFi) solutions together. It abstracts all manual operations, decreasing the technical knowledge barrier and making it easier for consumers to participate in current DeFi protocols. This is achieved through the use of pre-programmed algorithmic templates and automation.
According to AlgoBlocks’ research and discoveries, even simple operations like bridging and staking are frightening to the majority of bitcoin users. AlgoBlocks’ goal is to make it simple for the typical Crypto user to use DeFi products without being bogged down by the complexity or subtleties of the procedures necessary to use the product.
Check out this tweet on: As a crypto newbie, do you find DeFi is complex to use?
What are DeFi Liquidity Pools?
In DeFi platforms, liquidity pools (LPs) are a collection of cryptocurrency assets contributed by investors and locked behind a smart contract. These assets might be utilized in decentralized transactions like lending and trading. The greater the liquidity available, the speedier and more convenient the transactions.
To begin, let’s define some often-used terminology in order to comprehend this concept better:
- Liquidity in cryptocurrency refers to a coin’s capacity to be exchanged for cash or other coins. Simply said, it is the convenience of being able to obtain your money or complete a transaction anytime you choose.
- Liquidity provider (LP) is an investor who deposits bitcoin into the liquidity pool to supply funds for smart contracts. Anyone can be a limited partner, and becoming one can give a source of passive income.
- Market Maker Automated (AMM) The readiness to purchase or sell assets at a certain price is what distinguishes a market maker in a controlled exchange. It ensures liquidity by bridging the gap between the selling and purchasing prices. The AMM automates and anonymizes the function of a typical market maker in a liquidity pool. The AMM is a separate algorithm for each protocol that assists in asset pricing.
How do liquidity pools work?
When an investor pools at least two tokens and locks them in a smart contract, he or she creates a liquidity pool. A new market is then established for that particular group of tokens. As the first liquidity provider, the investor gets to establish the first price for that liquidity pool.
As an investment, the successful liquidity providers can contribute liquidity to the pool.
How do trades happen in LPs?
For comparison, let’s talk about centralized exchanges (CEx). A CEx uses a traditional order book model, which is a digital list showing the prices and volumes that users are willing to buy or sell. A market maker charges relatively higher fees for facilitating a transaction.
Decentralized exchanges get rid of this intermediary process by using AMMs, the algorithm that sets the price of assets in the pool. The ratio of the tokens in the pool automatically dictates the price of the tokens.
The presence of AMMs allows users to directly trade with each other, more commonly referred to as “Peer-to-peer (P2P) Trading”.
What do liquidity providers get?
Liquidity providers receive Liquidity Provider Tokens (LPTs), which are representative of receipts or proof of ownership of their share in the pool. The amount of LPTs received is proportional to each provider’s liquidity to the liquidity pool. LPs can earn more by using the LPTs to stake or trade-in other protocols of the same blockchain.
When a trade takes place in the liquidity pool, a fee is charged on the transaction. The collected fee is distributed proportionally among the LPs, based on the amount of liquidity they supplied to the pool.
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AlgoBlocks is a newer platform that aims to improve the DeFi market by providing access to DeFi commodities like liquidity pools via automated pre-programmed templates. AlgoBlocks is your go-to platform for all of your Liquidity Pool needs, allowing you to grow your money without becoming bogged down by the complexities or nuances of the processes required to use the product. With AlgoBlocks, you can provide liquidity and earn rewards in the simplest and straightforward way.
Learn more about AlgoBlocks here to understand the future of DeFi, which includes trading, staking, and an all-in-one dashboard built on a strong architecture.
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