🔐 What is the meaning of this term? What is its purpose?
📖Definition:
Simply put, in liquidity pools, platform users provide tokens or currencies to liquidity pools, and the price of the coins in the pool is determined by a mathematical formula determined by the algorithms themselves.
The trading platform acts as a marketplace where buyers and sellers come together and agree on asset prices based on supply and demand.
This model relies on there being enough buyers and sellers to create liquidity. The role of market makers is therefore important to ensure that there is someone to meet demand, and maintain fair prices by contributing to liquidity.
⚙️How do liquidity pools work?
Trading in liquidity pools is done using a peer-to-peer (P2P#) model, where there is a direct connection between buyers and sellers through the order book. That is, transactions take place directly between user wallets.
What is the purpose of liquidity pools?
Liquidity pools aim to incentivize users of various cryptocurrency platforms, known as liquidity providers (LPs). Liquidity providers are given different currencies, a percentage of fees and incentives equal to the amount of liquidity provided (LPTs).
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