🎱Liquidity Pool Overview

An objective of MetaTrustDAO is to establish support for the liquidity pool’s tokens that will be distributed to our holders. A liquidity pool is a smart contract that allows users to swap one token for the other token that is supported by the pool. You will see this in swaps and other decentralized exchanges. An example of a liquidity pool would be $A / $MATIC LP. Such a pool would allow holders of either token to freely swap between the two tokens, paying a fee to the pool that will ultimately benefit those who provide the liquidity to the pool. In order for a pool to operate, an equal amount of $A and $MATIC would need to be provided to the pool regardless of the value of each asset. The amount required would be based on the desired exchange rate between the two assets. Once a pool is established, new contributions increase the security and liquidity of the pool. This allows fees to become more reasonable and swap exchange rates to stabilize.

The benefits of providing liquidity include payments of fees to the provider based on their percentage of ownership in the pool. Usually, the rewards are shown as an APY to attract new poolers but what’s really occurring is a portion of the pool fees with each swap is being paid across all liquidity providers. It can be measured by APY, but the rates fluctuate depending on the total value locked (TVL) and the volume of swaps within the pool.

One of the primary reasons for our project’s interest in funding liquidity pools is long term rewards sustainability. Currently, our project provides value to holders by providing fractionalized ownership of staking contracts distributed by our assets.

However, these staking rewards will not last forever as the contract pools have finite amounts of tokens to distribute. The amounts in the contract pools are specified in the white papers of the assets. Again, they will not last forever but for now it is a powerful way to raise awareness for newcomers in the metaverse. The example of $A / $MATIC LP will be our first liquidity pool contribution. It will be funded by the minting of WTKO place holder collection of in - game assets. We can apply this same logic to all assets we distribute to our holders along with provide fractionalized ownership of the LP yield.

Beware of risks. Liquidity pools are prone to impermanent loss, a term for when the ratio of tokens in a liquidity pool (for example, 50:50 split of ETH/USDT) becomes uneven due to significant price changes.