5 ms·

liquidity pools in AMM systems (automated market making) act as ballast systems with two assets. very similar to two pools of water in an actual ballast. when p

liquidity pools in AMM systems (automated market making) act as ballast systems with two assets. very similar to two pools of water in an actual ballast. when people buy it adds their liquid asset to side A, and removes a proportion from the new illiquid asset in side B. If they sold it would re-add it back to side B and subtrack from side A. Since nobody has more tokens outside of the ballast system, there is no way for it to go below the initial balance. which isn't much consolation for anybody that buys second or third or later, but does provide confidence to all of them that nobody has an advantage or interest in dumping it below its initial ratio, which is functionally the price. this has been a big boon for the crypto space over the last 18 months, a very phenomenal concept, as all assets can be permissionlessly traded if anyone takes the initiative to set them up. instead of begging a shady exchange to list a project under shady conditions, thats pretty much over now.

HWR_14 5y ago
Sorry, I've tried to parse this several times and I'm just confused as to how the system actually functions. Like, I have a dollar. I buy a token at the ICO price of a dollar. I dont understand how you can guarantee no one can ever buy a token for less than a dollar. What happens if I need US currency today?
- vmception 5y ago
  In the dollar:token pool lets say the ratio is initially set to 1.00 and nobody else owns the token, all the tokens are in the pool. The issuer put all their own dollars and their own tokens in the pool. If it helps to know, the issuer needed capital to do this and is not earning anything from people buying. The liquidity pool is owning all the assets. When you buy with your dollar, you increase the number of dollars in the pool, and decrease the number of tokens in the pool. So the ratio cannot be 1.00 it must be 1.01 or something above 1.00. When you want US currency today you sell it back and restore the ratio closer to 1. It is not possible for anyone to restore further below the initial balance because the maximum tokens in existence could only be used to get the dollars other people put in, but not the issuer’s capital.
  - HWR_14 5y ago
    So the pool is an artificial entity with the rule of "I will buy or sell token X at the ratio current ratio of dollars to token X that I have" that initially owns 100% of token X? As an aside, does this concept exist outside the crypto space? It seemed like you may have implied it was a standard object in finance.
    - vmception 5y ago
      Think of them as unincorporated orphaned general partnerships, similar to a trust Have not seen them outside of the crypto space, it would be ideal if they did, they are great for enabling liquidity of fungible assets without needing to court a market maker or exchange

HWR_14 5y ago

Sorry, I've tried to parse this several times and I'm just confused as to how the system actually functions. Like, I have a dollar. I buy a token at the ICO price of a dollar. I dont understand how you can guarantee no one can ever buy a token for less than a dollar. What happens if I need US currency today?

vmception 5y ago
In the dollar:token pool lets say the ratio is initially set to 1.00 and nobody else owns the token, all the tokens are in the pool. The issuer put all their own dollars and their own tokens in the pool. If it helps to know, the issuer needed capital to do this and is not earning anything from people buying. The liquidity pool is owning all the assets. When you buy with your dollar, you increase the number of dollars in the pool, and decrease the number of tokens in the pool. So the ratio cannot be 1.00 it must be 1.01 or something above 1.00. When you want US currency today you sell it back and restore the ratio closer to 1. It is not possible for anyone to restore further below the initial balance because the maximum tokens in existence could only be used to get the dollars other people put in, but not the issuer’s capital.
- HWR_14 5y ago
  So the pool is an artificial entity with the rule of "I will buy or sell token X at the ratio current ratio of dollars to token X that I have" that initially owns 100% of token X? As an aside, does this concept exist outside the crypto space? It seemed like you may have implied it was a standard object in finance.
  - vmception 5y ago
    Think of them as unincorporated orphaned general partnerships, similar to a trust Have not seen them outside of the crypto space, it would be ideal if they did, they are great for enabling liquidity of fungible assets without needing to court a market maker or exchange