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Liquidity Provision

Here we will delve deeper into the concept of liquidity provision, its significance, and how it benefits both liquidity pool creators and liquidity providers.

Introduction:

Liquidity provision plays a vital role in the smooth functioning of decentralized trading platforms. By enabling users to create and participate in liquidity pools, our platform fosters an environment where users can easily trade a variety of digital assets. In this article, we will delve deeper into the concept of liquidity provision, its significance, and how it benefits both liquidity pool creators and liquidity providers.

Creating Liquidity Pools:

Our platform allows users to create liquidity pools with various pairings, such as PSP22/PSP22 or PSP22/AZERO. These pools enable seamless trading in the dedicated "trade" section of our platform. By creating liquidity pools, users contribute to the decentralization of trading and facilitate the availability of trading pairs for other participants.

Setting Liquidity Provider Fees:

As liquidity pool creators, users have the autonomy to choose and set the liquidity provider fees within a specified range, typically between 0.1% to 3%. It is important to note that liquidity pool creators do not have any unfair advantages or benefits over regular liquidity providers. This ensures a level playing field for all participants, promoting fairness and transparency within the ecosystem.

Liquidity Providers as Market Makers:

Liquidity providers, often referred to as "market makers," play a crucial role in maintaining liquidity within the platform. By contributing their crypto assets to the liquidity pools, they help to facilitate smooth and efficient trading. In recognition of their valuable contributions, liquidity providers are rewarded with a share of the liquidity providers fee over time. This incentivizes market makers to continue providing liquidity, benefiting the entire ecosystem.

Understanding Impermanent Loss:

Impermanent loss is an important concept to grasp when engaging in liquidity provision. When users deposit tokens into a liquidity pool, the value of those tokens may fluctuate over time. If the price of the tokens changes significantly, the liquidity provider may experience a loss compared to simply holding those tokens. This loss, referred to as impermanent loss, arises due to the temporary nature of the liquidity provision process. It's important for liquidity providers to be aware of this risk and evaluate it in the context of their overall investment strategy.

Liquidity Providers staking:

Liquidity Providers will benefit from a 2% APY staking percentage on the PSP22 token that they provided liquidity to.

Conclusion:

Liquidity provision is a fundamental aspect of our platform, enabling seamless and efficient trading for users. By creating liquidity pools and setting appropriate liquidity provider fees, users contribute to the decentralization of trading and ensure the availability of various trading pairs. Market makers, or liquidity providers, play a crucial role in maintaining liquidity and are duly rewarded for their contributions. However, it's essential to consider the potential impermanent loss associated with liquidity provision. By understanding and managing this risk, users can make informed decisions and maximize the benefits of participating in liquidity provision on our platform.