- The Automated Market Maker (AMM) allows the tokens to be traded in and out of the liquidity pool whilst still keeping it equal in proportion.
6/n
For example: Buying ETH with DAI increases the supply of DAI whilst making it cheaper and ETH becomes more expensive, Vice versa..
-#Liquidity pools can hold assets as much as $2 million dollars so a trade of $2000 for example won't affect the prices very much.
7/n
- DEXs also help in trading assets between different Liquidity Pools. For example ETH can be trade with SDL by connecting ETH/DAI pool to SDL/DAI pool. This process is called ROUTING
8/n
Recap โคต๏ธ
0: Let's read about Liquidity Pools
1: Liquidity Pools (Definition)
2: Order Book Model (OBM)
3: OBM cont'd
4: Market Makers (MM)
5: Why OBM and Market Makers can't work in DeFi
6-8: How Liquidity Pools Work
9: Advantages of Liquidity Pools.
10:Liquidity Pools ProvidersI
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Check out last weeks thread on Stable coins๐๐๐
8. DEX - Decentralized Exchange: Unlike Centralized Exchanges, decisions are voted for by members of the network and transactions are public for everyone to see without an intermediary.
9. PoW - Proof of Work: This is a mechanism Bitcoin uses to regulate the creation of it's blocks and the state of the blockchain.
1. DAO - Decentralised Autonomous Organisation: This is a group of people with no central authority that vote to make decisions in a smart contract. They are also known as the Decentralized Autonomous Corporation. An example is MakerDAO.
2. AMM - Automated Market Makers: An automated Maker is a Decentralized Exchange protocol used in a Liquidity Pool that relies on mathematical formulas to price assets.
From the word 'MINING', someone might think of Blockchain mining for example in terms of #Bitcoin but no it doesn't involve block mining at all.
In fact it's a much more simpler process.
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DEFINITION:
Liquidity mining is an investment strategy in which participants within a DeFi protocol contribute their crypto assets to make it easy for others to trade within a platform.
2/n
Stable coins from the word "Stable" are non volatile tokens that over time have been able to maintain their 1 to 1 peg to a Fiat currency like the US dollar.
- They can be easily traded on #Decentralized exchanges.
- They are used to participate in DeFi without the volatility.
- It makes it easier to transfer Fiat across border without worrying about Foreign Exchange policies.
2/n
When we talk about #Bitcoin, we talk about a peer-to-peer system that allows people to send and receive money without any intermediary like the Bank or stock Exchanges.
But Financial services are more than sending and receiving, ain't that right?
That's where Defi comes in.
1/n
DeFi not only allows transfer of money.
It allows for other financial services such borrowing, lending, fixed deposit, etc.
2/n