What is a liquidity pool?

Simply put, the liquidity reserve is a huge digital financial reserve, and people invest money for a common goal. According to DeFi Pulse, this has become the basis of the decentralized finance (DeFi) trend, which has formed a series of new online banking networks, which are currently reported to have locked up $45.38B of funds.

The liquidity pool is the foundation of many decentralized exchanges. Investors who inject funds are called liquidity providers. They add tokens to the reserve pool and earn transaction fees in proportion to their total liquidity.

Go to Bybit Official Website

What is an exchange liquidity pool?

There are many exciting applications for liquidity pools. One of the application systems is automated market maker (AMM). This application system can use a certain amount of funds that have been locked in the agreement and use these funds for transactions.

It relies on algorithms to continuously recalculate asset prices through predetermined mathematical formulas and allows traders to obtain these prices.

In this case, the transaction is completed directly, rather than in the traditional way for the buyer and the seller to exchange each other. Anyone can trade at any time.

Yield Farming is another application that allows digital currency holders to borrow tokens through smart contracts to obtain returns. This approach is only possible in decentralized exchanges. Because the agreement allows farmers to transfer large amounts of funds in search of high returns.

Another representative and interesting application is blockchain games. The aim is to eliminate the monopoly created by game development companies over the rules of the game and allow players to regain control of the game.

Generally speaking, a game will have relevant data on a server controlled by the game administrator. Through blockchain games, players can obtain valuable in-game assets such as collectibles and digital currencies. The advantages of blockchain games include increasingly streamlined payments within the game, which can create a more flexible game world.

Open Bybit’s Account

What are HODLers (long-term investments)?

The term HODLing (long-term investment) was a spelling mistake of a drunkard at first, but he described the desperate desire to keep his digital currency, which later became synonymous with the first generation of digital currency traders. HODLing is an investment strategy, that is, buying and holding assets. Regardless of the current value, investors will hold assets for a long time, and long-term holding will get high returns.

The post of ‘I AM HODLING’ (I am a long-term investor) is a reaction to Bitcoin’s 39% plunge from $716 in 2013 to $438 in mid-December. According to the author of the post,’GameKyuubi’, the decision is correct because the value of Bitcoin in 2021 has risen to an all-time high of $60,000.

Currently, there are better ways to invest in blockchain and digital currencies. Providing liquidity reserves can be regarded as a new type of HODLing (long-term investment). In this field, investors are not limited to holding digital currencies, but can also benefit from AMM, Yield Farming or gaming agreements.

Go to Bybit Official Website

Traders still prefer traditional exchanges

However, when it comes to real-time transactions, professionals may prefer more direct and comprehensive applications. Just like the emergence of new strategies for long-term investors, traders now have platforms like Bybit, which provide better trading opportunities for traditional currency finance.

Although the liquidity pool concept is useful for long-term investors, professional trading hours require more efficient mechanisms. Exchanges like Bybit, thanks to the cloud system, can combine the liquidity of more than 280 exchanges.

In addition, it also provides important functions for traders. For example, 100 times leverage in contract trading, leveraged ETF tokens and perpetual option swaps. Having a pool of liquid funds and maintaining an agreement is not a simple matter.

For long-term investors, liquidity reserves are a better choice, and cloud-integrated exchanges like Bybit are the choice of professional traders. It is the coexistence of these currencies that promote the development of the digital currency market by satisfying various needs.

Open Bybit’s Account