What are the Benefits of Providing Liquidity on QuickSwap DEX?
The article aims to explore liquidity provision and the benefits of providing liquidity on QuickSwap.
The fact about Cryptocurrency is that it is a technology that is emerging, and the path to which it is growing into is yet to be clearly defined, and this is due to the fact that there are endless possibilities in Crypto.
One of the benefits of Crypto is that it does not permit conventional regulory protocols. This also has a backside, as a lot of unscrupulous actors are constantly trying to manipulate the market for their own gain.
This also means that for a project to be rated as “Top Performing”, it has to be able to be very resistant to market manipulations due to high liquidity i.e. more market participants (buyers and sellers) means smoother transactions. As a result, controlling the market for a single market player (or a group of high-end players) becomes more difficult.
Decentralized exchanges are one of the talks of the day in crypto. Unlike the widely known centralized exchanges, decentralized exchanges work with the unique feature of crypto; “Self-Regulation”. With DEXes, the need for middlemen are eliminated, you hold your assets instead of entrusting them to a third party. It is therefore important to understand the mechanism behind the operation of DEXes and this leads us to the subject of “Liquidity and Liquidity Pools”.
What are Liquidity Pools?
Liquidity refers to the simplicity with which a cryptocurrency may be converted to cash or other cryptocurrencies without affecting its price. The market’s overall health is represented by liquidity. The less volatile and stable cryptocurrency is, the better.
For Decentralized Exchanges like QuickSwap DEX, the backbone of their functionality is dependent on a technology known as a “Liquidity Pool”. A liquidity pool is a crowd sourced pool of cryptocurrencies or tokens that are locked in smart contracts and used to make transactions between assets on a decentralized exchange (DEX).
When trading on DEXes, transactions are carried out through an Automated Market Maker (an innovation that enables on-chain trading without the need of order books), in the classic sense, you don’t have a counterparty. Rather, you execute the deal using liquidity from the liquidity pool, no need to be a seller at that time for the buyer to buy; all that is required is adequate liquidity in the pool.
QuickSwap, like every other DEX, works with an Automated Market Maker model (same as UniSwap’s) to create these liquidity pools of tokens that can trade/swap with. All a user needs to do to trade is to interact with the QuickSwap smart contract. Importantly, by depositing a tokens of equal worth, anybody may begin to provide liquidity to the various QuickSwap Pools.
What are the benefits of Providing Liquidity on QuickSwap?
The QuickSwap AMM model pays it’s liquidity providers a 0.3 percent charge that is proportionally divided based on the amount of liquidity they supply. The pricing of the tokens are established using a formula called “the Constant Product Market Maker”.
It is important to note that one of the limitations to providing liquidity is a terminology known as “Impermanent Loss”. What this means is that, ifthe price of the tokens changes between when you add them and when you withdraw them, the dollar value will be lower. This happens whether prices are rising or falling and is just a temporary loss since it occurs only when you withdraw your cash from the liquidity pool.
QuickSwap is a decentralized exchange that allows you to trade tokens. In comparison to Uniswap or another Ethereum network AMM, you may exchange ERC-20 tokens inexpensively and rapidly with a Polygon address and some MATIC token. You also stand a chance of earning passively from your holdings by staking your tokens in the QuickSwap Pool, this way you contribute to the growth of the ecosystem and also benefit from doing so.
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