Understanding Liquidity and Liquidity pools

  • The body — limits of the liquidity pool
  • The rods — liquidity providers
  • The beads — liquidity
Liquidity Pools — Open Finance

The LPs and liquidity mechanics

Visualization of a trade on an AMM

A short example

A more in-depth view of price impact and slippage

The dangers of Impermanent Loss

Possible evolution of the two token prices in this scenario
  • 1.25x price change = 0.6% loss
  • 1.50x price change = 2.0% loss
  • 1.75x price change = 3.8% loss
  • 2x price change = 5.7% loss
  • 3x price change = 13.4% loss
  • 4x price change = 20.0% loss
  • 5x price change = 25.5% loss
  1. The good one, where token prices fluctuate around the same price or increase/decrease at the same rate.
The situations favorable to LPs
The situations unfavorable to LPs


For more information, please visit us:




Trusted Staking-as-a-Service Provider

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

Prospectors x IM community AMA RECAP

0Chain Weekly Debrief — February 3, 2022

Problems faced in the Chitfund Industry and how Chitmonks will solve it

AMA Recap — Noodles Swap

Nexus Mutual (NXM) Monthly Report November 2020

Q&A session with DEIP community 2/28/2022

Metaverse Can Propagate Financial Literacy Through Invisible Learning

OFFSHIFT AMA Summary with Decentralized Club ✔️

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Istari Vision

Istari Vision

Trusted Staking-as-a-Service Provider

More from Medium

Revamped Incentive Distribution on Ethereum

Rubicon Devcember Development Update

METL Collaborates with Prime Trust to Become the First Decentralized Fiat Gateway infrastructure in…

Thales Royale Seasons are going live on Optimism!