Liquidity mining: What is the relationship between market makers and traders? Are mining coins meaningless?

ICOs, once all the rage, have all but disappeared today.

IEO used to be extremely hot, but now it has gradually cooled down.

The difference is that ICO is almost gone, while IEO is still there. This year, the exchange also launched an IEO. Binance once launched sand in the form of IEO.

After liquidity mining exploded, the heat gradually faded. ICO or IEO may be the result of liquidity mining.

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Exchange and Market Making

Open various repository-style Dex, we will see two interfaces of exchange and market making. Here are two ways to participate in a repository-style Dex.

So, what is the relationship between exchange and market making?

We know that the exchanger uses one currency to exchange another currency, injects one currency into the transaction fund pool, and then exchanges another currency from the fund pool.

In other words, when the exchanger trades, his opponent is the pool of funds. And where does the pool of funds come from? Yes, it is the market maker who injects the capital pool.

Therefore, in essence, the relationship between the exchanger and the market maker is an adversary.

This is different from the order book-style Dex or Cex, where the counterparty of the trader is another trader. Logically, the exchange only provides a trading platform, does not participate in the transaction, but just reaps the benefits of the fisherman.

However, in the repository-style Dex, the exchangers are actually playing games with the market makers.

The risk for the money changer is relatively small. Because the changer is active. Converters initiate transactions on their own initiative, and can even move bricks based on the price difference between Dex and other exchanges.

Market makers are more passive. With the conversion of the changer, the ratio of the two currencies in the transaction fund pool changes, and the ratio of the two currencies that the market maker makes the market will actually change.

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Coins

Despite fee compensation, market makers still face the risk of impermanence. Therefore, some repository-style Dex issues mining coins, and market makers receive both fee income and mining coin rewards, thus encouraging people to participate in market making.

Some people think that there will be more and more mining coins and long-term inflation, so the price of coins will become lower and lower. It is pointless to think that mining coins is meaningless.

The little bee has a different point of view.

We know that in a repository-style Dex, there are two types of users, exchangers and market makers, who are actually counterparties. There are two kinds of currencies, two kinds of currencies used for exchange, and these two currencies are actually counterparties.

And when mining coins intervene, market making becomes three kinds of coins and three things.

We know that a triangle is the most stable shape in the world. Therefore, when the mining currency is involved, the two types of mining currency and exchange form a triangular relationship; exchange, market making, and mining also form a triangular relationship.

Converters can also make a market when they exchange, because market making can also be used for mining.

Market makers can also take back market-making assets at an appropriate time and then exchange them, because it is necessary to avoid and reduce the risk of impermanence.

write at the end

write at the end

In the repository-style Dex, the exchanger and the market maker are actually adversaries. The market maker is the receiver of the exchange.

There are two kinds of coins, A and B. Some changers exchange A for B, and some exchange B for A, but there is always a trend in general, either more A flows into the fund pool, and B flows from it; or On the contrary, more B will flow into the fund pool, and B will flow out of it.

And the market maker is the taker. In addition, market makers are different from order-thin exchanges in that they can place orders. The market maker is the unconditional receiver of the exchange.

Therefore, liquidity mining, as a kind of risk compensation and incentive, actually encourages more market making, makes the fund pool bigger, and allows the exchangers to enjoy lower slippage when trading. Therefore, mining, exchange and market making form a triangle relationship. Mining is not only beneficial to market makers, but also beneficial to exchangers.

Of course, this triangular relationship is unbalanced when mining coins are hyped like crazy. Because the mining currency has too much bubble. At that time, when the bubble of liquidity mining faded, the price gradually became rational, and this balance will gradually be established.

Of course, mining coins are not suitable for long-term holding. As far as the current liquidity mining design is concerned, mining coins are inflationary for a long time, and there are not many application scenarios, except nesting doll mining. However, even things that have fallen for a long time will fluctuate in the short term. In short-term fluctuations, mining coins are not without opportunities, but it is very difficult to grasp. However, we cannot deny the significance of liquidity mining for market making and exchange.