Some Dumbed Down Talk About Liquidity Pools We Keep Hearing About, From a Different Perspective
Usually disclaimers are added at the end, so you'll read the text first. But I'll start with one, so you won't need to read the post, in case you decide so.
So, here's the disclaimer: while I theoretically understand how the processes work in Defi at the surface level, I haven't actually dove in any real defi environment yet. Probably my first one will be BSC, with this little push from LeoFinance.
If you want to keep reading, go ahead. Just keep in mind I'm just a noob when it comes to experience with these platforms.
What most posts talk about when they go into the topic of liquidity pools is the liquidity providers and their rewards.
Of course, they are paramount, without them there is no liquidity and therefore no defi in the form it was imagined so far.
But there are two parts in this equation. The liquidity providers is one, and people swapping tokens around is the second one.
Obviously, on popular pairs, there are likely many more people doing swaps than liquidity providers.
While being a liquidity provider may require a certain level of sophistication, research and paying attention to the APR the pool is providing you and other indicators, being a person who swaps a token for another is simpler, but still a little different than on centralized exchanges.
As an example, if we consider the wLeo-Eth pair on Uniswap. If someone has wLeo, they can swap it for Eth. Or viceversa.
How price is calculated is pretty interesting, because it's not how we are used to from the centralized exchanges, based on demand.
If you want details, in our example, to swap wLeo for Eth on Uniswap, price is determined by a simple division between the amount of wLeo that is in the liquidity pool over the amount of Eth that is in the liquidity pool. At least that's what I've just seen in a video explaining things in simple terms.
When you want to swap a token for another on a defi platform, it's probably best to check the price of that pair on centralized exchanges first, for comparison. If you aren't offered a good price on the swap, the timing might not be very good, so maybe it's better to wait for a better price.
Sure, on Ethereum there are huge gas fees, so chances are you won't go there unless you already know what you are doing.
Binance Smart Chain, where bLeo and Cub will be is a chain based on Ethereum and from what I read there are Defi platforms there that are similar to counterparts of Ethereum only smaller and with funny names.
The advantage is, of course, the lower fees.
I'm speculating now from rumors and bits of information, but we might not even need to use one of the existing defi platforms and access them through what Leo is building on BSC, CubFinance, but I guess we'll soon know more.
Posted Using LeoFinance Beta
