Understanding ARMswap's Liquidity Pools: How they Work and How to Get Started

Let's say you travel across the city every single day. But you have to change the transport from taxi to bus to on-foot to reach your destination. Obviously, it doesn't sound convenient. But what if there was city wide public transit system that allowed commuters like you to travel any time using the cards.  

I know, this isn't some imagination, public transit systems exist. They are kept operational though city funds. and the city/government earns a fee in return for this fund provision.  

In the DeFi ecosystem, these city funds are known as liquidity pools which are filled using contributions from liquidity providers like you. So, traders, just like commuters, use the defi platforms and then you, like the city, earn a share of swap fee for your contributions.  

But how does this exactly work in the crypto world and how does ARMswap’s liquidity pool function? Let’s discuss today:

What Are Liquidity Pools?

A liquidity pool is basically a collection of digital assets that are held together in smart contracts. Traditionally, brokers or market makers provide liquidity but in the defi ecosystem, we have liquidity pools that are built by the community. Individuals who contribute to the liquidity pools are known as liquidity providers (LP) and they work by contributing some values of two assets to create a trading pair, which users can trade against.

Let’s consider the example of Ethereum and Binance Smart Chain for this. Say, you have a trading pair pool of ETH/BNB. An LP will add an amount of both tokens to the pools which you will use to trade. In return for their contribution, participants receive LP tokens which represent their share of the pool.

Now let’s consider how do liquidity pools work:

In the crypto world, users trade their assets utilizing the liquidity pool. The price within the pool is determined using an algorithm called the Automated Market Maker (AMM), which adjusts the price based on the ratio of the two assets in the pool.

The AMM Algorithm:

The most common formula used is:

x × y = k

Where:

x = the amount of one asset in the pool

y = the amount of the other asset in the pool

k = a constant value, independent of the trade size

When a user trades, they add one asset and remove another. The AMM adjusts the asset ratio to ensure the product of the two quantities remains constant, allowing the pool to stay liquid and handle trades of any size.

So, the next big question is what makes liquidity pools so great?

Benefits of Liquidity Pools

Well, liquidity pools offer several advantages that make them appealing within the blockchain ecosystem:

Decentralization:  

Crypto liquidity pools remove the need for a central intermediary, allowing users to lend, trade, or borrow assets directly on the blockchain. This enhances transparency and reduces the risks of censorship or manipulation.

Accessibility:  

Liquidity pools are open to all users with assets to contribute, enabling smaller investors to participate in the DeFi ecosystem and create passive income.

Lower Slippage:  

Large crypto liquidity pools reduce slippage, making it easier to execute large trades without significantly affecting the market price. This is especially beneficial for traders handling substantial orders.

How Do ARMswap’s Liquidity Pools Work?

ARMswap, the up-and-coming DeFi crypto swapping platform, is here to offer you an efficient and secure crypto trading experience. Unlike traditional exchanges, ARMswap  

liquidity pools to facilitate token swaps. So, contributing to these pools allows you to earn passive income in the form of a share of swap fees based on your contribution. On top of that, investing in an ARMswap’s liquidity pool is also one of the best ways to earn rewards and ARMSP tokens alongside.

How to Get Started:

Wondering how you can get started with ARMswap’s liquidity pool? Here’s how:

Connect Your Wallet to ARMswap

Start by connecting your cryptocurrency wallet to ARMswap. We support a variety of Web3 wallets offering users flexibility when it comes to managing their assets. Once the wallet is connected, you can start swapping tokens or provide liquidity.

Select Your Trading Pair

ARMswap supports crypto swaps across 31 blockchain networks - including AirDAO, Conflux, Chiliz, CORE, and Ethereum. You can choose any source and destination blockchain from these options and then choose whether you want to swap or invest in liquidity pool.

Enter the Amount and Confirm Transaction

Once the trading pair is chosen, enter the amount you want to contribute to the liquidity pool, and double check all details before confirming the transaction.  

Receive LP Tokens and Earn Rewards

Once the transaction is initiated, ARMswap's algorithm will calculate your share in the liquidity pool. In return for your contribution, you will receive LP tokens as well as an extra incentive on a weekly basis for contributing to ARMswap's liquidity pool.

Why Choose ARMswap for Liquidity Provision?

So, in case you are still wondering why you should choose ARMswap’s decentralized liquidity pools for liquidity provision, here’s why:

30+ Blockchain Networks:

ARMswap supports crypto swaps across 30+ blockchain networks - including AirDAO, Conflux, Chiliz, CORE, and Ethereum - with plans to include 20 more EVM blockchains by the end of 2025! This makes ARMswap stand out because our interoperable blockchains are way higher than our competitors.    

Reducing Fees and Eliminating Complex Transfers:  

The complexity of crypto swapping between blockchains often leads to high transaction fees. ARMswap eliminates the need to rely on multiple exchanges or services for token transfers. Unlike traditional methods ARMswap streamlines the process into a single, user-friendly solution, reducing transfer fees, stress, hassle, and unnecessary steps.  

Advanced Security Protocols:

ARMswap takes user security very seriously. Therefore, we are implementing Hardware Security Modules (HSMs) so you can do cross chain swapping securely and seamlessly. Not only this, ARMswap's next version will include a second security layer with Secure Multi-Party Computation (SMPC) that will allow you to experience an even higher level of security.

Not only this, ARMswap will also be launching its mobile app soon so you can swap, trade, and earn on the go!

Wrapping it Up

...and there you have a complete guide on what liquidity pools are, how they work, what sets ARMswap’s liquidity pool apart, and how you can get started with it. Understandably, the world is moving more towards the crypto ecosystem as a better means of investment. Within this ecosystem, platforms like ARMswap, are playing a crucial role in helping run the operations smoothly. But for that, we need you and your contributions to help keep the ecosystem thriving.  

Let’s work together to build a more stable and accessible DeFi landscape.