Guys, how do pools work? For example hbarx/hbar 13%, what

are the risks?

Defi swap protocols are an alternative decentralized way to swap one token for another instead of trusting a centralized exchange. People lock equal parts of 2 cryptos into a pool using a smart contract in exchange for LP tokens that keep track of what % of the pool they own. Then when someone else wants to swap between those 2 cryptos, they can put one of those into the pool and pull out the other - aka “swap” or “trade” one for the other. This changes the balance between the 2 assets locked in the pool, which means it changes the exchange rate for the next person to come along and swap. In exchange for providing this liquidity, the people who locked their 2 cryptos into the pool to hold LP tokens are paid a % of the transaction proportional to their ownership of the pool, usually through the pool simply getting larger by 0.3% of the value of each and every trade - this is the cost to the user for the service provided of making the swap. When someone decides to withdraw their liquidity, they can swap their LP tokens for the proportional % of the pool they own, but now the pool is larger than when they locked their liquidity in due to the 0.3% tx fee that happened on each trade. Risks include whether or not the dex smart contract was written securely, and also the fact that if the value of the two assets diverge by an enormous amount while your liquidity was in the pool, you would have been better off just holding each of the two assets instead of locking them up, which is called “impermanent loss.” There may also be a few other risks, like in the ħ to ħx pool, there’s also a risk the stader SC is separately hacked and ħx goes to zero.

😮 thanks

With ħ to ħx specifically, the ħx will definitely appreciate against ħ by a predictable amount, so the impermanent loss should theoretically be low, since the exchange rate will diverge but probably mostly always stay somewhere in between what it is on stader and a 1:1 ratio, due to the 1 week unlock of stader - some people will probably always want to unlock faster than that and use swapping as a means to do it, and therefore decide to accept a slight decrease in value to do it. Meanwhile arbitrageurs will come along and cancel out any huge difference as well. So the bet you’re making locking liquidity in that pool is that you believe people will want to come along and swap often between the two cryptos on the dex you’re on - often enough that the 0.3% tx fee you’re accumulating a piece of adds up to more than the amount you are losing by locking ħ in the pool, which won’t appreciate while locked even though the ħx will appreciate. Plus you’re also taking on the other risks I mentioned above and maybe a few others as well.

Here’s my question - and I know almost nothing about LP’s - what about a HBARX/USDC pair. Does that make sense? As a liquidity provider I would think that with be a very safe pool, right? No IL in either direction and I pick up a little from the fees.

If you believe ħ will eventually go way up, it’s dangerous, because “up” to most people means up against the dollar, which means impermanent loss due to the diverging asset values.

The ħ to ħx pool seems like a safer bet to me, because it’s theoretically a pretty known exchange rate, even if that rate diverges slowly.

Also though, you don’t have to always set the fee at 0.3% per trade - for more stable pairs you can set it at 0.05% on tangent and for less stable pairs they have 1% as an option.

Not HBAR - HBARX/USDC. Because HBARX can not have IL because it’s value is based on number of HBAR it represents, not fiat.

Welcome - definitely let me know if you figure out why I’m wrong, I’m open to being wrong - as an ħ maximalist I’m pretty new to defi.

Father’s Day responsibilities - no time now. But I might fire off some more questions later.

what would you recommend?use this or refuse?

thanks for the thoughts

Welcome - also, remember the ħ/ħx trade frequency all depends quite a bit on stader keeping that 1 week unlock period for ħx - if they shorten that, it’ll decrease the quantity of swaps between ħ/ħx on dexes, so it may not be worth as much to provide that liquidity.

I'm just on the stader betting for now

Yeah, I expect for now with such a high return, the better bet is just to hold ħx rather than trying to provide liquidity for this pair.

thank you for your wise thoughts

this is not so clear for me.. hbarx value increases over the time.. so there should be IL here too.. or not?