How do LIQUIDITY POOLS work? (Uniswap, Curve, Balancer) | DEFI Explained

Liquidity pools, in essence, are pools of tokens that are locked in a smart contract. They are used to facilitate trading by providing liquidity and are extensively used by some of the decentralized exchanges a.k.a DEXes.

One of the first projects that introduced liquidity pools was Bancor, but they became widely popularised by Uniswap.

Curve realised that the automated market making mechanism behind Uniswap doesn’t work very well for assets that should have a very similar price, such as stable coins or different flavours of the same coin, like wETH and sETH. Curve pools, by implementing a slightly different algorithm, are able to offer lower fees and lower slippage when exchanging these tokens.

The other idea for different liquidity pools came from Balancer that realised that we don’t have to limit ourselves to having only 2 assets in a pool and in fact Balancer allows for as many as 8 tokens in a single liquidity pool.

Website ► http://finematics.com
Post ► https://finematics.com/liquidity-pools-explained
Patreon ► https://www.patreon.com/finematics
Follow me on Twitter ► https://twitter.com/finematics

(Visited 414 times, 1 visits today)

You might be interested in

LEAVE YOUR COMMENT

Your email address will not be published. Required fields are marked *

eos
EOS (EOS) 0,892461 1,25%
aave
Aave (AAVE) 59,04 3,87%
the-graph
The Graph (GRT) 0,061188 2,19%
kusama
Kusama (KSM) 25,77 0,97%
waves
Waves (WAVES) 2,12 0,18%
dash
Dash (DASH) 39,42 0,62%
bitcoin
Bitcoin (BTC) 15.874,15 0,02%
ethereum
Ethereum (ETH) 1.165,91 1,70%
cardano
Cardano (ADA) 0,304337 0,34%
tether
Tether (USDT) 0,961781 0,02%
xrp
XRP (XRP) 0,388815 0,19%
solana
Solana (SOL) 13,66 1,02%
polkadot
Polkadot (DOT) 5,17 1,49%
usd-coin
USD Coin (USDC) 0,960820 0,03%
dogecoin
Dogecoin (DOGE) 0,088361 1,71%
uniswap
Uniswap (UNI) 5,27 0,73%
terra-luna
Terra Luna Classic (LUNC) 0,000156 2,26%
litecoin
Litecoin (LTC) 72,95 1,39%
chainlink
Chainlink (LINK) 6,92 6,11%
bitcoin-cash
Bitcoin Cash (BCH) 107,81 1,26%
algorand
Algorand (ALGO) 0,232571 0,77%
matic-network
Polygon (MATIC) 0,820076 0,83%
stellar
Stellar (XLM) 0,085762 1,59%
cosmos
Cosmos Hub (ATOM) 9,86 2,27%
filecoin
Filecoin (FIL) 4,13 0,22%
tron
TRON (TRX) 0,050896 0,59%
ethereum-classic
Ethereum Classic (ETC) 19,30 0,12%
dai
Dai (DAI) 0,961781 0,05%
tezos
Tezos (XTZ) 0,957360 0,37%
monero
Monero (XMR) 131,32 0,21%