As the Stellar network evolves, it’s essential to understand the emerging concepts of liquidity pools and Automatic Market Maker (AMM). These features provide users with new opportunities for trading, earning, and participating in the Stellar ecosystem. In this article, we’ll explore the intricacies of liquidity pools, AMM, and how you can become a part of this exciting environment by creating a Stellar wallet on Scopuly.
What Are Liquidity Pools on Stellar?
Liquidity pools on Stellar are asset pairs with funds locked in by liquidity providers. These pools enable automatic trading between the assets without relying on limit orders or an order book. This automatic trading process helps maintain smooth transactions and reduces the dependency on traditional trading methods.
Understanding AMM in the Context of Liquidity Pools
AMM, or Automatic Market Maker, plays a pivotal role in liquidity pools by automatically calculating token prices within a trading pair based on the balance of both tokens in the pool. This approach ensures a seamless supply of liquidity for traders, eliminating the need for traditional order matching.
The Role of Liquidity Providers
Liquidity providers contribute funds to liquidity pools, allowing traders to buy and sell tokens. In exchange, they receive a portion of the transaction fees paid by traders. By providing liquidity, these participants play a crucial role in the efficiency and stability of the trading process.
Adding and Removing Liquidity from Pools
Users can easily add liquidity to pools by supplying their own funds while maintaining a 50%/50% ratio of coins within the pool. Liquidity can also be withdrawn by specifying the desired percentage of liquidity to remove, offering flexibility for users to manage their investments.
Pool Tokens and How They Are Obtained
When users add liquidity to a pool, they receive pool tokens that represent their share of the liquidity. These tokens enable users to withdraw their liquidity along with a share of the pool fees, giving them an incentive to participate in liquidity provisioning.
Creating Your Own Liquidity Pool on Scopuly
Scopuly allows users to create their own liquidity pools, even with custom tokens. By establishing a pool, users can become liquidity providers and contribute to the broader Stellar network. Once a pool is created, other members of the network can join as liquidity providers.
Understanding Impermanent Loss
Impermanent loss is a potential risk for liquidity providers due to price volatility in one or both tokens within the pool when withdrawing liquidity. While the loss is not necessarily permanent, it can impact a provider’s earnings in the short term.
Supporting Scopuly’s Main XLM/SCOP Pool
Supporting Scopuly’s main XLM/SCOP pool or other SCOP token pools can enhance their popularity and financial indicators, allowing users to earn a return on their invested assets. By participating in these pools, you contribute to the growth and development of the Scopuly ecosystem.
Join the Stellar Ecosystem with Scopuly Wallet
To explore the benefits of liquidity pools and AMM on Stellar, create an account in the Stellar wallet Scopuly. By doing so, you can check how AMM works and become a part of the thriving Scopuly community. Get started today and discover the exciting world of decentralized finance!
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