Why use DieselPools?

First up, let me be clear that I'm not 100% clear on the workings of Liquidity Pools in general, and have a basic (I hope) understanding of "impermanent loss"... I do understand the risks though, and have only dipped my toes into some pools in Binance (where I'm down a couple $100)... I bought into the pools when BTC was a lot higher though... so even if I just held BTC, I'd STILL be down a couple $100 ANYWAY... so that's cool.

On Binance though, I've been earning some daily BTC & BNB rewards for providing that liquidity though.

Then along comes Splinterlands SPS

... and a SWAP.HIVE / DEC pool

Anyone familiar and active with Splinterlands (and even a fair few I believe that have never bought a single card until now) will know about the SWEET SPS rewards coming from the daily airdrop.

Never heard of Splinterlans or SPS? JOIN SPLINTERLANDS NOW and check out the airdrop details here: https://sps.splinterlands.com/airdrop ... just do it and thank me later... it's FREE to join & play (but to earn rewards you will need to spend $10 on the 'start pack' known as a Spellbook

Double airdrop points for providing liquidity in DEC pools!

What that means is that if I HODL my daily quest, battle & season DEC rewards from the game, I earn 1 airdrop point for every 1 DEC (great incentive... and it's pushed the price of DEC to 7-8 times its soft peg value of 1,000 DEC = US$1).

BUT... if I put that DEC into the SWAP.HIVE / DEC liquidity pool (or any of the other DEC liquidity pools, then I'm getting 2x airdrop points for every 1 DEC... #score!!!!

What a no-brainer! I'm HODLing my DEC to spend on Chaos Legion packs when that edition is released later this year ANYWAY ... so why not lock it into a liquidity pool and earn DOUBLE my SPS every day?

But Wait... there's a catch!

There's always a damn catch. First, up: There are no LP rewards/fees when providing liquidity on the Diesel Pools. OK, so @Aggroed & @Yabapmatt (and other Splinterlands employees/investors) aside, who would want to provide liquidity for 0 returns?

Remember the double SPS airdrop points: Well... that was incentive enough for me to give it a try... but then I started noticing my assets values dropping in the pool. This is probably due to people swapping DEC for HIVE when it's trending up and vice versa when trending down (it's that *impermanent loss risk I was talking about earlier)... which is cool, and is generally more than covered by LP rewards in normal pools (except when there are major spikes and corrections).

... but I digress... My actual question is this: HOW are the DieselPool swap prices determined?

A screenshot of the SWAP.HIVE / DEC DieselPool a few minutes (probably hours, depending on how long this post takes me :P) ago:

A screenshot of the Hive Engine SWAP.HIVE/DEC market at the exact same time:

What does this mean?

The way I understand it:

**AND PLEASE correct me if I'm wrong here*... the whole LP thing in general is still a little unclear to me.

Joe public can come along and swap 100 DEC receiving ~1.539 SWAP.HIVE in return on the DieselPool.
Joe Public would however only receive ~1.535 SWAP.HIVE if he simply sold his DEC on the open (Hive-Engine) market.

... and if Joe Public was a smart little developer, he could probably create a nice little bot that simply traded away merrily every few seconds swapping DEC on the DieselPool, taking that SWAP.HIVE and buying more DEC on the open market and then rinse/repeat without care or concern for fees eating up miniscule gains like in a regular liquidity pool.

i.e. Normally there would need to be a large enough arbitrage opportunity during a spike (or dip) before all the markets equaled out for his bot to make him some money... but in DieselPools this arbitrage seems to be there permanently... all at the expense of the liquidity provider... hmmmmmmmmmmm... I must be missing something... right?

Or why else would anyone want to provide liquidity ?

P.S. @Aggroed / @Splinterlands (if you're reading this) or anyone else more knowledgeable on LPs (and DieselPools specifically) than me:

*Where are the DieselPool swap/exchange rates taken from?

Surely there should be SOME 'penalty'/cost (lower swap/exchange rate) on the guarantee/convenience of DieselPools vs the open market?

Thanks in advance to anyone that can shed some light! I'll be dishing out BRAAIBs (my own token in development) to anyone that (sensibly) comments and helps me understand what's going on here.

DISCLOSURE / DISCLAIMER

BRAAIB tokens for commenting are worth 0 at the moment, have 0 utility and liquidity, and are probably another 6-12 months away from being implemented at my Bistros.

🍻 🍻 🍻 🍻 🍻

...BUT... *1 BRAAIB will score you 1 x (real world) 500ml draught BraaiBery (my own craft beer) when it does eventually go live.