EnviDa Protocol
  • ๐ŸŒAbout Envida Blockchain
    • Introduction
    • Overview
    • Why EnviDa?
    • How it works?
    • Understanding the EnviDa Blockchain
    • DeFi Essentials
    • The Joint Potential of Blockchain, IOT and AI
  • ๐Ÿš™What is DriveMiner?
    • Environmental Tracking Devices
    • The Cost of Mining
    • The Solution of Mining
    • POW Consensus
    • Technical Specs
    • Device Sales and ROI
  • ๐Ÿ’ฐ$EDAT Tokenomics
    • Detailed EDAT Tokenomics
    • ICO and Token Listings
    • Token Unlock and Allocation
    • Game Theory
  • ๐Ÿ“ˆStaking and Rewards
    • Reward Distribution
    • DriveMining Rewards
    • Validator Rewards
      • Unstaking Penalty
    • Staking Pool Rewards
      • Discounts
    • Data Collection Rewards
      • Stream Payment - Sensors
        • Competition and Arrival
      • Stream Payment - Lidiar
        • Teamwork
      • Pool Bonus
      • Formulas
  • ROI
  • ๐Ÿฆธโ€โ™‚๏ธFor Users
    • EnviDa Wallet
    • Driver Experience
    • Data Marketplace
    • DeFi Essentials
    • External Wallets
  • โ›“๏ธBlockchain Architecture
    • Trustless EVM
    • Bridges
    • Runtime Development
    • Cross-Chain Compatibility
    • EnviDa Dex Engine
    • Technical Architecture
    • Scalability
    • Indexer & Explorer
    • Application Security
    • Storage
    • IPLD
    • Governance
    • Liquidity
    • Concensus
    • Runtime Environment
  • ๐Ÿ“”API Recipes
    • Account
    • Asset
    • Bag
    • Bundle
    • Market
  • ๐ŸŒEnviDa Network Infrastructure
  • โ˜ธ๏ธNodes and Validators
  • ๐Ÿง AI & Simulations
  • ๐ŸคNetwork Referral System
  • ๐Ÿ›ฃ๏ธRoadmap
  • ๐Ÿ“šResources
    • Website
    • Business Whitepaper
    • Github
    • Technical Whitepaper
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  1. About Envida Blockchain

DeFi Essentials

One of the main aspects that differentiate Centralized vs Decentralized exchange in the way these create or obtain liquidity.

Centralized exchanges like Coinbase use the traditional order book model, where either liquidity is created by buyers and sellers or there are one or multiple maker makers and market takers that are in charge of creating liquidity. โ€จโ€จMarket Makers are entities that facilitates trading because they are always willing to buy or sell a particular asset. By doing that, they provide liquidity so users can always trade, and they donโ€™t have to wait for another counterparty to show up

So why canโ€™t we just reproduce this in DeFI?

We can, but it would be really slow, expensive and always result in poor user experience.

The reason is that the traditional order book model relies heavily on the exchange having Market Makers, or traditional market makers willing to always make the markets. Without Market Makers, an exchange becomes instantly illiquid and in pretty much unusable.

In a Decentralized Exchange like Uniswap, liquidity is provided in the form of liquidity pools

In its basic form, a single liquidity pool holds 2 tokens, and each pool creates a new market for that particular pair of tokens. When a new pool is created, the first liquidity provider is the one that sets the initial price of the assets in the pool. The liquidity Provider is incentivized to provide a supply of equal value of both tokens in the pool. If the initial price of the tokens in the pool, diverges from the current global market price, it creates an instant arbitrage opportunity.

When liquidity is supplied to a pool, the liquidity provider receives special tokens that are caller LP tokens in proportion of how much liquidity they supply to the pool.

When a trade is facilitated by the pool a 0.3% fee is proportionally distributed amongst all the LP (Liquidity Provider) token holders.

Each token swap that a liquidity pool facilitates results in a price adjustment according to a deterministic price algorithm.

This mechanism is also called, an automated market maker.

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Last updated 2 years ago

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