Liquidity Pools
What are Liquidity Pools
In traditional markets, liquidity is defined as “the availability of liquid assets to a market or company; liquid assets; cash.” Another way to think about liquidity is the degree to which an asset can be bought or sold in the market without affecting its price.
Liquidity pools are an innovation within the blockchain industry and a vital part of decentralized finance (DeFi). They are smart contracts containing tokens supplied by the platform’s users.
A liquidity pool comprises a pair of tokens, token A and token B. We can also say that token A is paired with token B. When someone trades between tokens A and B on a decentralized exchange (DEX), they rely on tokens in the A/B liquidity pool. When someone buys token B, there are fewer B tokens in the liquidity pool, increasing the price of token B.
Creating a Liquidity Pool
Step 1: Update Transferability
You change your token from having limited transferability to fully transferable via the
Step 2: Head to Uniswap
Go to Uniswap to easily create a pool for your token
Uniswap provides instructions for how to set up a pool with your token
Step 3: Tell Your Community!
Once you've completed setting up your pool on Uniswap, you're ready to start trading your token!
Remember: Creating token utility is the best way to encourage engagement with your community and your liquidity pool.
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