(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)

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As the name suggests (but adapting this to crypto and hive-engine), its a pool of "value" which aims to provide "liquidity" through the form of "swapping" a pair of tokens on either direction.

Contrary to how trading market works, where you need to have already an offer on the market from someone else in order to complete (accepting it) a trade, on liquidity pools, you don't need to wait for someone to make an offer (this assumes also the pool has liquidity obviously).

Instead, this so called "pool of value" contains already a certain amount of tokens of both sides of the pair (provided by the liquidity providers), and one can effectively "swap" tokens on both directions, without having to wait for people to open trade positions.

The pair of tokens of the designated pool, will have a specific "trade" ratio (I will get to that later, don't worry) and depending on the direction and volume of the swaps, that ratio will change.

Liquidity providers can at any time, add or removed liquidity to the pool. When they do that, the ratio of the pair is used to add or withdraw the pair into/from the pool.

🔎 Quick example

In the ATX:SWAP.HIVE pool, at the time of this picture, if I would swap ~1.86 SWAP.HIVE for ATX, I would get 1 ATX. And on the other way around, if I would swap ~0.53 ATX for SWAP.HIVE, I would get 1 SWAP.HIVE.

And in this case the same pool has 1063 ATX and 1981 SWAP.HIVE tokens in its liquidity.

First, let's go through how to add and remove liquidity to a pool and then the swapping, because one would need to understand some mechanics around it.

As an example for this, lets use the ATX:SWAP.HIVE pool and the values within the following picture.

In this case, you will have two "buttons", a "+" to add liquidity and a "-" to remove liquidity of the pool. The other 👨‍👩‍👦 button, allows you to see who is currently providing liquidity in the pool and how many tokens and its percentage that is respective to.

This pool ratio is currently at a value of ~1.86 SWAP.HIVE per ATX token. Which means that if you want to add liquidity to this pool, you will need to have liquid tokens in your wallet, and you will be adding liquidity at that ratio.

Example: If you want to add 10 ATX tokens to the above liquidity pool, you will also require ~18.6 SWAP.HIVE in your wallet in order to successfully add liquidity. In this case, I am showing that I don't have enough tokens available and therefore I am not able to add liquidity.

The same process applies to removing liquidity, although here you are always allowed to remove as much as you wish (from your own liquidity). Hence, if you add liquidity and following that, people swap tokens around, making the ratio potentially change, then when you later remove all that (previously added) liquidity, you will not receive the same amount of tokens that you initially added, but instead you will receive the equivalent to the ratio the pool is at.

Swapping tokens follows the same concept around the ratio. And in this case, the more you swap in one specific direction, the more the ratio will change (against your favor) in that direction.

Example: If you swap ATX to SWAP.HIVE, at the shown ratio (in the left) of ~1.86 SWAP.HIVE per ATX, you will notice that, the more volume you swap in that direction, the more that ratio will lower. Meaning that you will start receiving less SWAP.HIVE then the initial 1.86 SWAP.HIVE per ATX. This obviously depends on who is swapping the other direction, which would counterbalance the ratio.

Effectively, the pool acts as an automatic trading market where the price of exchange varies depending on the direction and volume of the swaps. It will also be influenced by the total amount of liquidity in the pool, as in, the bigger the liquidity of the pool, the less ratio will change for the same swapped volume.

This is one of the reasons why liquidity pools are so powerful when they have very large amounts in it. Because people wanting to swap tokens, can easily do it without much price change. Especially when others anticipate those swaps on the blockchain and "gamble" with prices by swapping on the opposite direction.

And this leads us to the interesting next topic that I will present you in the next post series! 😱 - I never do these things, I promise... 😝