Being a crypto dummy, this really helps me to understand the concept of liquidity pools better, thanks for that.
One outstanding question for me, is how does the liquidity pool start off at 50/50 equal value? Say if I were to start a liquidity pool for Hive and my fictitious token LUT which is worth $0.00001, would I have to get people to put in Hive and LUT worth equal amounts in the pool before starts to operate? Are these the liquidity providers you mentioned?
I'm happy you could learn something from the post :-).
The two tokens that you pair together need to have the same dollar value to start with. Let's take your example of Hive and LUT at LUT being worth 0.00001.
Let's say for this example that hive is worth 0.33 $ and you want to put 100$ worth of each token as liquidity into the pool. You would therefore need to put:
100 / 0.33 hive and 100 / 0.00001 LUT -> 303 Hive and 10'000'000 LUT
That's the ratio that you would put at the start to create the pool. It could be any multiple of it.
Hope this answers your question :-)
Thanks. What I mean is, as the person creating the liquidity pool, do I have to fund it all myself or do I get other people to put their funds the pool?
But wait... ignore my question, because I think I've figured it out....
I remember when I invested in the Zing liquidity pool, which is the only one I invested in, and I had no idea what I was doing, I invested a few times in the pool, and everytime I had to put both Zing and Hive in the pool, and every time the actual amount, or the relative price of the two differed. And when I eventually divested, it differed again. I think it's all coming together like jigsaw puzzle now.
Look forward to the next post. thanks!
You got it correctly. With the pools that we have on hive, you always need to put in or pull out 50% of value in both coins. Since both coins evolve differently in price, you will always have a different ratio.