First thing is we have to know how did liquidity pool start. Crypto has too much fluctuations so a lots of people do not want to set buy or sell orders. If you set at lower price and the price goes up suddenly then you are in a loss. So people want to see the market price instead of placing orders. This cause the problems worse. If there is no enough liquidity there will be more fluctuations. So they need to make sure to have enough liquidity then they created liquidity pool.
For the liquidity pool to work you need to put tokens in both sides. But it still surfer the impact of market price. Let make an example for Leo and Hive pair. If you put your Leo and Hive at the price of Leo@0.4 and Hive@1$. You put 2000$ worth of Leo and Hive. You put 2500 Leo and 1000 Hive. Now Leo is at 0.14$ and Hive at 0.36$. How much Leo and Hive you will get when you withdraw from the liquidity pool. If you did not put in the liquidity pool and convert it to stable coin you will get around 7142 Leo and 2777 Hive. Not including fees for the transactions and exchange fees. So I believe you will not get that much from the liquidity pool.
To get stable price and enough liquidity you may need to create enough buy and sell orders. If you can set a buy wall then your token will be success. If you can not set a buy wall if would be a failure. But for some token you can not set a buy wall. I will take Leo as an example if you get Leo from posting delegation then the price of Leo will drop overtime. There are many tokens printing out everyday. So you need to set a peg price. If you can not set a buy wall then allow to use this token to buy some of your products. Or you need to give the discount for this token too.
The crisis of FEX comes into my mine. They allow people to use their token in their exchange with discount. But they did not create a buy wall so people are panic selling the token and finally FTX falls apart.
Liquidity pool is good for short term. It will make the price of your token stable. Maybe the price will also but for longtime you will not achieve anything. You can see the example of SPS. SPS price is too high at the start but now down to the bottom. They can only create a short term demand for SPS. Not long term and stable one.
I like the idea of BRO and Vault. For Vault token they set buy and sell orders at the same price. They will not give their tokens free. They are called utility tokens. It is not like tribe tokens that will reduce the price overtime. It will be a lose for you if you put your tribe tokens in liquidity pool.
Thanks for reading my post. You can freely express your thoughts.
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I believe the liquidity pool is a good thing for those who want to help the project, since the liquidity pool stabilizes the token price and makes the token never fall to zero. I believe what you meant by the post is that tokens need to have other sources of income to create buying pressure and not just depend on a pool of liquidity.
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Exactly. Liquidity pool can not prevent the falling of price. If people are using liquidity pool then the price will be stable but it is not. So to stable the price one need to create buy/sell orders that can handle the demand. Or stop placing buy/sell order and only use liquidity pool.
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Sorry. FTX. It looks you like liquidity pool. What I want to write is liquidity pool can not eliminate losses caused by price fall. Only the different is everyone in the liquidity pool has to share this load.
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