(these ones will be a slightly different posts from the usual HPUD ones I do, but for some time I wanted to, hopefully, shed some more light into how to use or read the information visible from diesel pools on Hive Engine side-chain)
Understanding Liquidity Pools on Hive Engine
A Hive Engine based Series you might want to call a Guide 😜
For this particular "guide", I will use my preferred front end, https://beeswap.dcity.io for most examples and https://tribaldex.com for some of the other features present in Hive Engine.
Although I am using these as examples, there are other around that could provide you similar or near quality of such information. And I will make examples from my ATX token and respective pool (although most of this will apply to any other token/pool).
Since I wish these post series to be as effective as possible, for the ones not yet familiar with liquidity pools, here it is a summary of all the posts in this series:
InTo Basics
- 🤯 What is a Liquidity Pool?
- 📊 Adding, Removing and Swapping
The Real Deal
- 🤑 What do Liquidity Providers Win?
The Importance of Understanding
- 😎 The Depth of Liquidity Pools APR's
- 🤫 Options and Strategies
Made with lots of ❤️ from @atexoras.witness, @forykw and its dark soul @forkyishere
(Disclaimer - these topics might need corrections over time, so please take that into consideration, and I would encourage U to contribute if you wish/can)
😎 The Depth of Liquidity Pools APR's
Now, we are reaching the part I wanted people to pay attention. Many will look at the APR numbers and either get super excited or bored with something some quickly realize as "not being real".
Usually because IRL people know that an APR of 20% for example is already something that has some high risks and guarantees over long periods is likely non existent. Banks for example (that I know) are around 1 to 5% ranges and then above that is usually investment pools or other financial tools using trading methodologies.
In the case of Hive Engine tokens, and on the pools, the APR respective to the rewards I previously explained (you can see in the picture above, on the right side), this APR is respective to the value you have as liquidity provider inside that specific pool, and how much value are you winning on rewards daily.
This APR does not account for the fees you also get as liquidity provider.
Now you may inquire, how are things being calculated, right? If we have tokens (in this case SWAP.HIVE and ATX), how is the value of each calculated?
Understanding the $$$ values 🤑
First, we have to understand which are the markets that exist in order to make sure we are comparing apples with apples. And in this case, HIVE is the quoted, and lets call it, "primary root". For many reasons here, being the most important one the fact that Hive Engine is a layer 2 chain, dependent on the layer 1, which is Hive.
The primary root, HIVE, is valued something... let's lock now with 0.35 USD for exemplification. That means that we can start representing every other tokens on Hive Engine through how those respective tokens trade against its representative HIVE pegged token (SWAP.HIVE).
So, for example, if ATX is trading on the market (and this is a key point, NOT ON THE POOL) at 1 to 1 (one ATX for one SWAP.HIVE), then it means that 1 ATX will be valued also 0.35 USD.
And from that calculation we can find that part where you read "worth $1136" in the above picture.
You might or might not have noticed, that from the picture above, the pool has around 2049 SWAP.HIVE, but "worth" indicates only 3237 SWAP.HIVE... how come you may have asked? (and for the ones that didn't yet got this... a pool has to have equal value on both sides of the pair, hence if we have 2049 SWAP.HIVE, then 1188 ATX at ~1.72 SWAP.HIVE/ATX, is the 2049 SWAP.HIVE, and so we should have total worth approximate value of 4098 SWAP.HIVE instead)
So, why the worth is less? That's because the quoted market bid (~0.35096 USD) is currently less than the pool exchange rate of ~1.72 SWAP.HIVE per ATX (or ~0.60513 USD per ATX).
At this point, my @forkyishere side complaining to me with "SIMPLE WORDS MATE", because everyone reading up to here have lost track of everything... 😭
Terms and more terms!!! 🤯
Right... lets try to help a bit with more simple examples (using the same picture as above, but first lets address the 3 values behind the red dots I am pointing in the picture bellow):
From top to bottom...
- Pool value of the ATX token: This is the price you will be paying for swapping SWAP.HIVE for ATX via the pool.
- Market value of the ATX (bids - aka people offering SWAP.HIVE to buy ATX): This is the price you will get if selling ATX on the market, instead of using the pool 😉 - now some might be starting to get it
- Market value of the ATX (asks - aka people offering ATX for a SWAP.HIVE price): This is the price you will get if buying ATX on the market, instead of using the pool 😉 - DAMN NOW MAKES SENSE!
So, in the above example, where does it make sense to buy ATX? Market!
And likewise, where it does make sense to sell ATX? Pool!
You are welcome!
The same applies to the other side values, but here its a bit more complicated because of (in this case) ATX only being quoted in SWAP.HIVE...
Again, from top to bottom...
- Pool value of SWAP:HIVE token: This is the price you will be paying for swapping ATX for SWAP.HIVE via the pool.
- Market value of SWAP:HIVE token: This is the price you will be paying for buying SWAP.HIVE in the market, which because its a pegged token to HIVE cryptocurrency, it's the same value HIVE is valued in the internal market. This is the part that can be hard to interpret for other pool pairs that don't pair against SWAP.HIVE.
But that's basically it. Confused? Drop questions bellow.
Rewards APR Conclusions 💡
So, given that you now understand where the prices come from... and why the pool is worth less than what you would have thought (because the market price, aka bids, of ATX is lower than the pool price)...
You can now understand that the price of ATX inserted into the rewards distribution is valued at the market price (bids) and therefore represents a "lower" (in this example) value from what you see represented on the pool, influencing the value of the total rewards change, and respectively the associated APR.
Example!
If I go now (which I did) and broadcast a position on the market on the bids side, at ~1.72 SWAP.HIVE per ATX, you will see a completely different rewards value and associated APR.
Comparing it with how it was before...
And there you go as well, the perfect pool worth of 4098 SWAP.HIVE or 1445 USD. 🤗
🤫 Options and Strategies
Right... so, you should now understand that you should pay attention in looking at pools and their respective token markets, especially because of the price, APR or market volume, as prices might not be "realistic" for specific volumes to be traded or swapped.
Aka, for the example on my pool (and example above), I have "unrealistically" inflated the value of the APR with a bid that is worth just 0.172421 SWAP.HIVE worth (check picture of Hive Engine market with my position), making it not real the actual value of the rewards being represented in the pool, especially IF (and this is important) everyone just wants to sell their ATX via the market.
In this case, ATX is not widely distributed yet, and therefore the risk of people selling on the market is lower (way lower) than people using the pool which will in any case get you more SWAP.HIVE. (SO PLEASE STOP SELLING ATX AT LOWER PRICES and USE THE FRICKING POOL if the prices there are better!!! LOL) - 🤣
This applies to any other pool! And that's the part where I want to be effective with these posts. Use the fricking pools more often, because if you don't you are loosing most of the time! They have, most of the times, way better prices. And its instantaneous...
Trading is mostly for whom is able or prone to wait for better positions. More reward yes, but also more needed skills and time consuming if you don't have access to trading bots.
Side note for ATX distribution 🤓
If you are trying to help, thank you! 🙏 Teach others or use the ATX pool distribution as an example. It will help both the pool and, as people get skilled, the overall participants (liquidity providers) in the pool.
Because the current distribution is via the pool (you can only get ATX via other two events, but they will change), and rewards are kind of high and for a very long period (hence why I did a 5 year distribution), it's going to be very hard for the rewards to NOT attract more people, even with higher amounts of distribution when we pass 1 year (where APR will increase a lot for some time).
Selling or buying will need to be an educated exercise for whom wants to think long term. Especially after 1 year, because the distribution will large increase and by then getting ATX via other places might be less attractive.
I hope to also make this a fun exercise... where you learn. If you profit, well done mate!
With this, I conclude my series of posts about pools. I hope to have not bored you much and made the attention you deposited in this post useful. If you learned, then I was successful! And if you use my token to learn how this all works, HUGE thanks!!! The point of this is to entitle you to be skilled enough to get skilled on using any other pool.
Appreciate the reading!