Liquidity Pools and your Token

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. In this case, with your creator token (CREA), the initial liquidity is provided by P00LS.

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.

How It Works

Step 1 - Update Transferability

You change your token from having limited transferability to fully transferable via the Creator Portal.

Step 2 - Liquidity Tab

Go to the Liquidity Tab in the Creator Portal and click on the Request Button.

The Liquidity Tab will be where information about your Liquidity Pool will live once one has been created.

Step 3 - Fill out the Typeform

You will be brought to a typeform that will request information needed by P00LS to set up the pool. In this typeform you will:

  1. Confirm that your token is Transferable

  2. Confirm which currency you'd like to pair your token with

  3. Provide P00LS with an email

Once you have filled out this form, P00LS will receive your request and begin the process of setting up you pool.

Step 4 - Pool Created on Uniswap

Et voila! Within 7-10 days of your submission, P00LS will have your pool created and live on Uniswap.

FAQ: Creating a Liquidity Pool with P00LS

Where do we create the liquidity pool?

  • P00LS creates liquidity pools using Uniswap and manages the liquidity dynamically based on market prices using Arrakis.

Who provides liquidity for the pool?

  • P00LS uses the supply allocated to us via the zerozero Treasury to start creators initial liquidity pool on Uniswap v3. In other words, this comes from the 10% of supply that P00LS holds of creator tokens.

  • Creators do not need to add any of their own supply of tokens to create liquidity, but they absolutely can.

Can a creator remove liquidity from the pool?

  • Only if they add their own liquidity to the pool. They cannot remove liquidity that P00LS provides.

Which currency do you recommend we pair with?

  • Generally, the standard paired token for starting a liquidity pool is Wrapped Ethereum (WETH). This is also the recommended paired token. Ex: CREA/WETH

    • However, there are many reasons a creator might decide to go with MATIC, BONSAI, or USDC, depending on where their community is most active or if you've received a Grant. It's absolutely fine to select a different currency.

Is it possible to have multiple liquidity pools?

  • P00LS will only commit liquidity to a single liquidity pool: a single trading pair.

    • This does not prevent creators from creating multiple liquidity pools on their own or with their community.

  • P00LS recommends minimal open liquidity pools, as Uniswap automatically routes trades from other currencies.

    • For instance, if your CREA token is paired with WETH, CREA/WETH, and someone wants to buy your token with MATIC, Uniswap will automatically route them behind the scenes between two pools: MATIC/WETH and then CREA/WETH. Because of this, it is much more productive to have a single, healthy liquidity pool as other currencies can be routed as such.

What is the starting price of the token when creators launch a pool with P00LS?

  • The Default starting price for your token is 0.0001$. We can start it lower, but not higher. We do not start at a higher starting point because:

    • Higher starting prices increases the possibility of a rug pull from early community members and large token holders.

    • By starting at a very low price, it's easier to manage your communities expectations

  • We do not add any of the base asset when creating the pool (ETH, MATIC, etc).

In the case of a creator’s token performing poorly, is there any risk of losing liquidity after a certain period of time?

  • The liquidity provided by P00LS (initially 10% of the total supply of the token and 0 base currency) will stay inside the Uniswap pool whatever the market conditions. The ratio of token to base currency will change, as well as the dollar valuation of the assets in liquidity based on token performance.

Are there any specific tax implications related to setting up a liquidity pool that creators should be aware of?

  • Selling tokens is a taxable event. Because creators receive tokens for free they should pay taxes on the profit they make by selling their tokens. Not tax advice.

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