DeFi Essentials

DeFi Essentials

Basic Liquidity Pools like the ones on Uniswap use a constant product market maker algorithm that makes sure that the product of the quantities of the 2 tokens always remains the same

On top of that, because of the algorithm, a pool can always provide liquidity, no matter how large a trade is. The main reason for this, is that the algorithm, a-synthetically increases the price of the token as the desired quantity increases

The ratio of the tokens in the pool, dictates the price.

All of these concepts are important because the application layer or the Dapp that is being built to power the privately-owned economy is essentially an exchange where, for the most part, it is the assets that create the markets and generate the liquidity.

In an initial phase, the Dapp is powered by the digital assets.

For Future considerations and implementations each project may considering creating liquidity pools and more detailed tokenomics for staking, yielding and such other token governance rules and exchange regulations that many generate fidelity in the governing token of the exchange. This can be evaluated at a later time when tokenomics have been clearly defined.