DreamAnalysis | Understanding Liquidity Pools in DeFi EP03
2024-09-28

✨ Welcome to the Third Lesson of DeFi Education! 

🔄 In the previous session, we discussed liquidity pools and understood that they serve as a source of passive income. Today, I want to talk about how profits and losses occur in liquidity pools.

 👀 Common Scenarios in Liquidity Pools 
The most common scenario is when the prices of the two tokens in the pool remain stable, allowing users to earn income solely through transaction fees.

 🔼Price Increase Scenario 
The second scenario occurs when both tokens increase in value equally. For example, in the ETH-BTC pool, if Bitcoin and Ethereum both rise by 20%, the user not only earns fees but also benefits from the increased value of their tokens.

 📉 Price Decrease Scenario 
In the next scenario, both tokens may decline in price equally. Here, the user still earns transaction fees, but the overall value of their Bitcoin and Ethereum holdings decreases.

 📊 Asymmetrical Price Movement 
If one token significantly outperforms the other, the number of tokens held by the user decreases, and they miss out on the potential profits from that token's increase. Conversely, if one token experiences a substantial drop in value, the user's assets become more concentrated in that depreciating token, leading to potential losses.

 🧠 Understanding Optimal Strategies 
These various scenarios can arise for users when creating liquidity pools. As you progress in this education series, you will gradually learn how to identify the optimal conditions to maximize your profits.

 ⏰Upcoming Topics 
In the next session, I will cover different types of liquidity pools, such as liquidity pool staking, to gradually guide you into the world of DeFi with real money.

 ❌Disclaimer 
The information provided in this lesson is for educational purposes only and should not be considered financial advice. Liquidity pools and DeFi investments involve significant risks, including potential loss of capital. Please conduct thorough research and consult with a financial advisor before participating in any DeFi platforms. The channel and its creators are not responsible for any financial losses incurred.