Skip to content
EARN PASSIVE INCOME WITH DEFI VIA MARKET MAKING
EARN PASSIVE INCOME WITH DEFI VIA MARKET MAKING
WHAT IS THE OVERALL GOAL?
WHAT IS THE STRATEGY?
WHAT DO I PROVIDE?
HOW DO I GET STARTED?
WHAT ARE THE RISKS?
WHAT ARE THE OPEN QUESTIONS?
WHY DON'T I JUST HOLD ETH?
SUMMARY
RESOURCES
More
Share
Explore
RESOURCES

icon picker
How do liquidity Pools Work?


⁠
Loading
www.youtube.com
⁠
⁠

Why do we need liquidity pools?

⁠
image.png
⁠
image.png
⁠
⁠

Why can’t we just reproduce traditional system in DefI?

We can but currently too expensive, market makers can become illiquid.
Current ETH blockchain is slow
Scaling solutions adds additional steps
⁠
image.png
⁠
⁠

⁠
image.png
⁠
image.png
⁠
⁠


How does liquidity pools work?

⁠
image.png
⁠
⁠
⁠
image.png
⁠
image.png
⁠
⁠

Liquidity Pool - Formula

⁠
image.png
⁠
⁠
Goal - Ratio between tokens remain close to 1

Liquidity Pool - Ratio dictates price

⁠
image.png
⁠
⁠
Larger Liquidity pools have less slippage because they are able to handle bigger trades

Concept - AMM

⁠
image.png
⁠
⁠
Take the tradition order book market making and automate it (AMM)
provides incentives for people to participate via rewards

Potential Risks

⁠
image.png
⁠
⁠
Bugs in the Blockchain
Admin Keys
Systemic Risk
LP hack
Impermanent Loss


Want to print your doc?
This is not the way.
Try clicking the ⋯ next to your doc name or using a keyboard shortcut (
CtrlP
) instead.