Decentralized payments are just one piece of the puzzle of what it really means to be decentralized, as you'll also need the assistance of decentralized liquidity to build and extend additional functional financial layers on top of your blockchain-related protocol/application.
Liquidity is king, and it can make or break your protocol if you cannot rally sufficient liquidity to aid in your project's growth and enable the use cases you sought out to provide your end-users.
The existence of decentralized liquidity pools provides added reassurance to large investors in young projects who do not want to get stuck trying to unload their tokens in an illiquid market.
Liquidity pools are thus a bellwether of maturation for decentralized cryptocurrency markets.
The total quantity of liquidity in these decentralized pools remains small by the standards of conventional markets, but it is growing at a fairly impressive pace.
The biggest problem faced by liquidity suppliers to pools like Uniswap is the risk of major relative price movements between the paired assets; if the price of an asset in a trading pair surged suddenly, it could cause a ripple effect of negative counter-trades from a lack of proper liquidity.
Would-be liquidity providers in new markets will have a bit less to fear when they can use relatively stable assets as their base pair, insuring against collapses in the liquidity of their target market.
The inability of the main Ethereum chain to rapidly settle high volumes of transactions is a fundamental impediment to liquidity providers, because the ability to quickly remove liquidity is a driver of willingness to provide liquidity in the first place.
Plenty of parties have tried to "Shortcut" the liquidity problem by providing liquidity from some concentrated or centralized venue.
Therefore the health of DeFi is largely identical to the health of decentralized liquidity venues.
Decentralized Liquidity Is the Backbone of DeFi
Publicado en Dec 8, 2019
by Coindesk | Publicado en Coinage
Coinage
Mencionado en este artÃculo
Noticias recientes
Ver todo
Blockchain Bites: Bitcoin's Run, Uniswap's Hemorrhaging Value, Anchorage's Banking Bid
Bitcoin is nearing all-time highs in price and market cap last set three years ago.
Japan's megabanks to lead experiment with digital yen
We have, in order, Cheese Bank with a $3.3 million theft, Akropolis with its $2 million loss, Value DeFi with a whopping $6 million exploit and finally Origin Protocol's loss of $7 million.
Number of new Bitcoin addresses spikes amid growing FOMO
Japan's three largest banks, as part of a group of 30 private sector actors, are set to collaborate on an experiment with a digital yen.
Not just Wall Street: Quant trader explains why Bitcoin price is going up
Sam Trabucco, a quantitative trader at Alameda Research, believes four general factors are pushing up the price of Bitcoin.