TO WHO IT MAY CONCERN ABOUT LP POOLS
WHAT IS UP PEAKD? This is your favorite streamer ApeOfWallSt bringing you a in depth article on Liquidity Pools and the terror of Impermanence Loss.
Before we begin into this lesson on LP pools and IL, I would like to introduce myself to you guys who DO NOT know me. I am one of the many SplinterlandsTV streamers which is where i spend majority of my time if i am not streaming on twitch on my personal channel or playing SPL or other video games. I began my SPL journey on tron network when Steem Monsters rebranded to SPL. I used to be admin of a telegram group called DiviHunters where we administer and act as middleman for P2P trading. I have been through many many cycles of crypto including NFT bubbles, Casino mining, farm bubbles, shitcoin, rugpulls, etc.
Let us begin our lesson as I put on my professor gear which will transform me into Professor
Ape.
What is a liquidity pool?
A liquidity pool is a digital pile of cryptocurrency locked in a smart contract. This results in creating liquidity for faster transactions. A major component of a liquidity pool are AMMs.
(defined by coindesk)
Errrrrrrrrrr i have a monkey brain. Can you simplify this for me?
Sure, this basically means that Liquidity pool are the foundation behind the current Defi Ecosystem. In exchange for providing liquidity, you the provider of the lp will earn rewards from the AMM or automated market makers which shares a portion of the fees they make.
Liquidity pools like the definition mentioned, is basically a collection of funds locked in a smart contract. When liquidity is provided to the pools, what happens is that these LP pools are used in many ways such as facilitating decentralized trading, lending, and other functions. Liquidity pools are the backbones of many DEX.
How do we make LP?
Users can make LP by taking two tokens of equal value to create a market. Some pools requires staking while other pools require just holding the LP you have created.
In exchange for making LP, you will earn trading fees from the trades that happen in that pool, proportionate to the share you have contributed. You may also earn other rewards that is provided by the maker of the LP rewards pools.
What is an example of LP?
We can hit up a DEX or AMM to give a visual example.
Lets add some liquidity to the DEC:SPS pool. Please do not get confused. When we add liquidity to the DEC:SPS pool, it is the SAME if we called the pool SPS:DEC. It is interchangeable and does not affect what pool you join. (IT IS THE SAME GODDAMMMMMMMM POOL)
Okay, let's say I want to add 3000 DEC. At the time of writing, the quote of SPS to match that 3000 DEC is 24.04911 SPS
As you can see in the picture, the yellow scribble scrabble. It shows you the rate of sps per dec AND dec per SPS which is the same like we have said earlier.
I hope you guys had a better understanding of Liquidity Pools than when you before you began reading.
We will be releasing a second volume on LP Pools called "Terror of Impermanence Loss" tomorrow night. This article will cover exactly how Impermanence Loss works and the risks involved.
So if you like what you have read, please give me a like and follow on PeakD.
I also have other socials you can follow if you would be so kind.
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Youtube: https://www.youtube.com/channel/UC8ierThHiRG6zb5j4tBC0DQ
*Disclaimer: This is not financial advice, but rather an informative article. LP pools are high risk and I do not advise people joining unless they have done their research"
Thank you for explaining this! I know a lot of people are confused by LPs, and I think it is very important to at least have a basic understanding of how they work. I appreciate it!
I know alot of people who lost on them due ot the state of the currencies in the game the only one I touch right now is the USDC DEC LP and that is still on the risky side bc dec is not a stable coin it can fluctuate quite a bit but the rewards on the USDC-DEC pool can be substatial on BSC and offer 50% to sometimes 500-600% depending on volume and liquidity provided. I have gotten as high as 1000% for a day or so before lol. Much better risk to reward here than on the beeswap pools. Same for the SPS pool you can get much higher rewards and avoid the extra fees of cashing them out by using targeted liquidly on V3 which gets me 30-100% plus. I don't have any positions now in it as it has not been performing well lately so I decided to go all USDC-DEC and PNS-BNB as I convert my DEC to PNS right now to support the project. I also use PNS to sometimes convert back when PNS goes up or stays steady but SPS goes down like today I need to check and see if converting makes sense for some as SPS is down below a cent.
Sps moon, professor ape says so. 🙈
Thanks for the clear explanation. Any chance you could explain what I would get out of putting into a LP? How can I calculate any return I might get if there is any before I invest in one. Thanks
I usually watch on https://beeswap.dcity.io/swap?pools for an overview which LP is paying out additional rewards - the % is mostly different than what you get when you invest - depending how crowded the LP is
beeswap is much better also for brining in HIVE as it freq offers a .4% rebate for conversion of hive to swap hive incase no one knew that.
Beeswap is also one of the platforms that shows all the layer 2 rewards for certain pairs
I just started getting into some LP's me and maxpower talked about it some but always seeing how others explains it helps fill in spots when i forget stuff. cheers
Yes deffinantely I dont think people realize how much risk there really is in some of the LPs especially ones in Splinterlands they can offer good returns but you can also get killed on impermanent loss as SPS has been on a constant down trend I doubt now the LP rewards make up for the losses in value the APRs just don't seem high enough on tribal dex or the other variations. I only have been providing USDC-DEC as I have been getting anywhere from 50-600% on that pool consistently but just bc DEC is relatively stable in a range right now does not mean it will stay that way hence the likely hood for high APRs so be careful. I prefer to hold most of my LP positions in high liquidity pairs like USDC-ETH and use protocols like Camelot that offer various rebalancing and other strategies that minimize impermanent loss and adjust your positions based on the underlying algo you select. I used to hold a large LP postion on the sps/weth pool but luckily I decided pretty fast that was to risky bc now I would have a much smaller position due to SPS being 1/5 of the price from when I was in the pool and the rewards were cut so that also impacts the risk of holding liquidity in the pools. One may be better off using something like dswap and use a more traditional orderbook market maker strategy to buy below a certain range and sell above a certain range and you can also create various ranges and control the size of the buys and sells as well. There are no rewards but you get to keep the difference in the buys and sells (spread) which you can set up to be what you want to get with a little finagling. Also it refreshes and refills your positions automatically every 15 minutes if you get the premium which req 1200 staked bee for 1 market and 200 additional for every extra market you want to operate in. Also you may need a few accounts as you can only set up one market maker per market so to do some strategies you need to have multiple accounts.
I am trying to figure out where i can find a bot or maybe if there is none ill figure out how to create one but I want one that works a bit diff than dswap as dswap quotes in HIVE and I want it quoted in USD and adjust the bots orders based on USD and since its quoted in HIVE that would need to be auto adjusted every x minutes to adjust for the impact of HIVE/USD fluctuations. Also want a high freq bot that puts orders in the middle of the spread then if they are not filled fast takes them down and re posts another order or orders to try and catch trades happening in the middle of the spread then try to quickly re sell it below the current top of the spread. Also want a nested buy and sell wall for the bot that adjusts based on USD the same way so it does not get impacted by hive pumps as well as you dont need to manually adj it.
Also need to look out for bonus shares they can help you earn a better APR like on the COLONY lps right now you get a 1% bonus per day so not adjusting your LP down rewards you with time weighted extra units for reward purposes increasing your APR. You cant take these with you if you decrease the position but while you have it open they will give you larger %s of the rewards compared to someone just buying in with the same amount. The other platforms to my knowledge do not tell you about this.