Today we’ll explore the fascinating and profitable world of liquidity pools within the Chainge DEX, but before we get into specifics let’s draw out the basics of what pools are and how they work.
What are liquidity pools?
In Decentralized Finance (DeFi), liquidity pools are basically pools of tokens locked into a smart contract facilitating efficient asset trading while allowing investors to earn a return on their holdings.
A liquidity pool is nothing more than an automated market maker that provides liquidity to avoid large price swings for an asset.
How do Liquidity Pools work?
Anyone who provides liquidity in pools is actually adding funds to a smart contract, offering potential users the opportunity to buy and sell.
In exchange for providing liquidity, users aka liquidity providers (LPs) will earn trading fees from the trades that happen in their pool, proportional to their share of the total liquidity.
For example, let’s take a pair of tokens: token A and token B. Users need to put both token A and token B in the pool at the same time at a certain ratio.
When a user is buying token B with his/her token A in the DEX, he sends token A to the pool and gets token B from the pool. Which means the ratio changes.
When a user is swapping his/her token B for token A in the DEX, he sends token B to the pool and gets token A from the pool. Thus the ratio changes in the opposite direction.
When the price of token A or token B changes significantly over a period of time, the liquidity pool keeps receiving one token whose price remains the same or drops while giving out another token whose price rises. For the liquidity provider, this means he will lose some amount of tokens whose value increased. That’s what we call impermanent loss. But when its price drops later, the impermanent loss is compensated.
So, for those of you who have noticed one of the pooled currencies amount drop (or rise) this is completely normal and part of how liquidity pools work. However, in the Chainge app there are some pairs with sufficient liquidity so that impermanent loss doesn’t occur at all.
We recommend the following pools that have no impermanent loss whatsoever + great APYs:
- USDT/TF-USDT - Pool size: 20.23 million - APY：120%
- BTC/TF-BTC - Pool size: 11.8million - APY：125%
Also, one that does have impermanent loss but an outstanding APY to make up for it:
CHNG/USDT — Pool size: 1.41million — APY：417%
please remember these APYs will vary in time depending on the base price of the CHNG token and the amount of liquidity added in the pool according to the preset formula (which you will find later on in the article). Make sure to always check https://www.chainge.finance/info/pool for updated APYs.
Now, the million dollar question: how is Chainge able to offer such high APYs?
First of all, the fact that all APYs distributed are in CHNG tokens (which is our native token) makes things a whole lot easier for us since it’s dependent on the CHNG price. Second of all, arbitrage of course.
As for the APYs we offer for the Futures, here’s how things stand:
In time framing to earn the APY displayed is for the incremental TF assets you receive.
If you time frame your assets, you are going to instantly receive TF assets of a larger amount, which is the interest.
(And for some specific assets, we also reward CHNG, which is not included in the APY)
You could thus see the Futures market as an interest market. Those who use spot assets to buy TF-assets basically means they are lending. And those who sell TF-assets are getting basically back the funds they lend.
We are playing as a counter party when users are lending. And we get the right to liquidate our TF assets immediately so that we can arbitrage in the futures market.
So basically, the “time frame to earn” feature + futures DEX market = a decentralised loan system. The interest actually is not provided by us but the users who sell TF-assets.
Funds are secured because no matter if spot or TF the assets they are always on the users own address. And the DCRM technology guarantees that cross chain operations are safe. We’ve been working on this tech for the past 5 years. Some digging might be necessary in the FUSION Foundation gitbook if u want to get more technical details about the tech.
Anyways, users can use their TF assets to liquidate at anytime, or wait for them to mature. When TF assets mature, they automatically turn to spot. That’s why it is 100% secure.
The only difference between spot and futures (TF assets) is the starting time.
If the start time of an asset is 2022.1.1, and today is 2021.8.12, then this asset is futures. But when time passes, let’s say today is 2022.1.2, and the start time of the asset is 2022.1.1, which is before present time 2022.1.2, then it is spot.
And speaking of APY’s you can find the full list of pairs for which we offer some pretty remarkable APYs (including Futures) in the market section on our website: https://www.chainge.finance/info/pool
or just check them out below, see what pair best suits your financial needs and start filling your wallets with CHNG !
See how you can add liquidity for Spot, Futures and Options assets and also claim your Liquidity pool rewards in the video materials below: