Trading Liquidity Pools

General information regarding Trading Liquidity Pools

A Trading Liquidity Pool functions similarly to the traditional design of a Liquidity Pool. As we’ve previously mentioned, a liquidity pool is a pool of funds deposited into a smart contract by liquidity providers. When you’re executing a trade on an AMM, you don’t have a counterparty in the traditional sense. Instead, you’re executing the trade against the liquidity in the liquidity pool. For the buyer to buy, there doesn’t need to be a seller at that particular moment, only sufficient liquidity in the pool.

When you’re buying the latest coin on an AMM such as Uniswap per se, there isn’t a seller on the other side in the traditional sense. Instead, your activity is managed by the algorithm that governs what happens in the pool. In addition, pricing is also determined by this algorithm based on the trades that happen in the pool.

An example of Providing Liquidity on Matry

Below is a straight-forward example of Trading Liquidity provision:

a) Matry Labs release a new mToken to be supported by the Matry protocol, called mAPPL which is a derivative token, price-pegged to the real world stock exchange price of the APPL Stock.

b) Users create a pool to provide liquidity for trading of a new mAPPL / ETH trading pair available to swap on Matry.

c) Liquidity providers of the new mAPPL / ETH trading pair, receive an on-going split of the mAPPL / ETH trading fees based on the amount of liquidity provided to the mAPPL / ETH liquidity pool.

d) Liquidity providers also receive passive MATRY tokens as a redeemable reward based on their Liquidity position remaining open, within the mAPPL / ETH liquidity pool.

Risks

Like most aspects of the Cryptocurrency space, there is always an element of risk which users much protect themselves from. In a scenario where the Cryptocurrency market does take a turn for the worst, users must always decide on a position to close their liquidity positions, to avoid loses.