Author: Gate.io Researcher: Charles F.
Automated market making (AMM) liquidity pool is a competitive product launched by Gate.io in the third quarter in 2021. It aims at stimulating the current dull trading market and offers users another effective solution to trading. Meanwhile, AMM liquidity pool is also a key part of Gate.io’s decentralized blockchain layout, playing an essential role in our development planning. Following the launch of the AMM mechanism, Gate.io has promoted liquidity mining products as well. Due to our full support, Gate.io liquidity mining is highly likely to be one of the best crypto financing products for low volatility.
DeFi Projects developed in their prime from October 2020 to May 2021, and the number and size of relevant products showed exponential growth. Some leading decentralized trading products (e.g. Curve, Uniswap, Pancake, etc.) attracted unprecedented eyeballs, so the level of capital absorption increased exponentially as well. During the DeFi explosion phase, the liquidity mining products accompanying DeFI projects also gradually emerged as an important investment in the decentralized trading market with their high rates of return.
Image: The Value Locked of DeFi Projects on Ethereum and BSC
The peak of DeFi appeared in May 2021. According to Debank, the gross value locked of DeFi projects on Ethereum and BSC at that time reached above $128 billion. However, after May 10th, 2021, the size of DeFi and the number of participants both dived due to the volatility of the cryptocurrency market. According to Debank statistics, on May 19th, 2021, the gross value locked of DeFi projects on Ethereum and BSC plunged to $33.263 billion in a single day, a dive of 43.21%. Since most DeFi projects are running on Ethereum, the activity fee (also Gas Fee) in this system can reflect the project activity on the blockchain. According to Ycharts’ statistics, the average gas fee on Ethereum plummeted after May 19th. Until July 5th, 2021, the value locked of DeFi projects on Ethereum and BSC is $76.597 billion, which is 69.492% of the gross value locked in May 19th. The Ether gas fee is only $2.513 billion, less than 10% of the gas fee on May 19th.
Image: Ether Average Gas Fee
The disappointing performance of DeFi Projects inevitably affected liquidity mining products offered by decentralized platforms. Numerous liquidity providers suffered from great impermanent loss when crypto prices fluctuated wildly. What’s worse, the profits of liquidity mining could not cover the capital loss, which caused some investors’ doubt and facilitated their withdrawal of the capital from related products.
Activate the Market Against the Trend
Constrained by the low volatility of the cryptocurrency market, the current DeFi projects have lost their past momentum. The shrinking value locked and quitting investors both indicate that the next opportunity for DeFi seems far away. A decentralized revolution has been forced to stop before it can fully begin, and the DeFi project seems to have entered a downward cycle.
However, Gate.io chooses to break the traditional business model and promotes AMM liquidity pool as well as liquidity mining products at the moment. It is not a reckless decision or a blind attempt, but a significant counter-cyclical strategy made by the Gate.io team after the in-depth research in market trends and the prospects of blockchain technology.
Application scenarios and landed projects are still important factors in the development of cryptocurrencies and blockchain products. Due to the lack of real application scenarios, cryptocurrencies (or tokens for blockchain products) have been widely criticized for a long time. They were once labeled as “speculative tools” and “no intrinsic value” and even became synonymous with “Ponzi schemes”. However, the actual applied cases of two blockchain technologies, NFT and DeFi, are the best response to past comments. If the emergence of NTF will completely change how modern property rights are measured and transferred, DeFi will stand itself out in the financial sector with the practical application of blockchain technology to financial service. A commonplace view that DeFi will bring an important reform in the financial industry will not become a fallacy just because of the temporarily unsatisfying performance of DeFi projects.
Thus, Gate.io’s recent decision to promote AMM liquidity pool and liquidity mining products is its best solution to the platform development and users’ investment demands.
First, the crypto prices are relatively steady, even though the settled volume of cryptocurrencies does not reach DeFi’s peak. Therefore, investors will undertake less impermanent loss when conducting liquidity mining.
Second, DeFi projects are in urgent demand by other platforms for development. The last DeFi explosion has exposed the problems of Ethereum computing power and high gas fee. Besides, issues like long trading time and high costs also prevent DeFi projects’ expansion on Ethereum.
Last but not least, the crypto market needs to be revitalized by investors who want new products. Currently, cryptocurrencies are undergoing horizontal price movement, and the price volatility and the rates of return of flexible financing products from most platforms are both low. Hence, to revitalize the market, investors require new products with high rates of return to increase confidence.
As for a platform, liquidity products can add the liquidity into an AMM liquidity pool and trading slippage; As for investors, the liquidity products are aimed at easing the shortage of flexible financing products with high return rates in the crypto market and providing investors considerable benefits during the volatility.
Three Leading Advantages
Substantial Benefits of Users
A high return rate is the most significant bonus Gate.io presents to participants. During the promotion, Gate.io will reward liquidity providers with all transaction fees created in the automated trades. Meanwhile, liquidity providers will be encouraged with direct bonuses. To be conservative, Gate.io liquidity products ranks high in the return rates among other crypto financing products.
Take BTC, ADA, and DOT as examples. Sheet 1 compares the return rates of Gate.io liquidity mining products with the flexible financing products from other platforms.
Image: Comparison of Return Rates (flexible financing)
From Sheet 1 we can tell that the return rates of Gate.io’s products substantially exceed others. Up to now, the average annualised return of Gate.io liquidity products has reached 46.54%, far surpassing familiar products. Furthermore, a few exchanges can offer crypto flexible financing products with return rates of over 10%. That is why flexible earnings hold little attraction for investors.
In addition, Sheet 2 compares the return rates of Gate.io liquidity products and those from other centralized exchanges.
Image: Comparison of Return Rates (liquidity mining)
From Sheet 2 we can tell that, until July 2nd, the return rate of Gate.io liquidity mining products is higher than the products from major exchanges. In terms of some products, there is a huge gap between the two products. The return rate of ADA/BTC liquidity mining products reached 109.48% at the Gate.io platform, while it was mere 15.111% at another exchange. Gate.io now has launched the liquidity mining products of 32 trading pairs, and the annualized returns of O3/USDT, XRP/BTC and ADA/BTC have exceeded 100%.
Adequate Resource for Promotion
Liquidity mining products are Gate.io’s most competitive products in the current season, playing an essential role in the platform development strategy. In the subsequent activities, Gate.io team will conduct resource adjustment and enhance the publicity and promotion of AMM liquidity pool and liquidity mining products, so as to increase the capital and trading volume of the pools. For liquidity providers, the more participants trading in the AMM liquidity pool, the greater the trading volume. As a result, the higher income from transaction fees, the more earnings participants will gain. With the effective promotion of Gate.io, we believe that AMM liquidity pool and the trading volume will demonstrate a rapid growth, and liquidity providers will obtain higher transaction fees faster. At the same time, the Gate.io team will further study relevant technology to offer users a better investment experience.
Heightened Investment Security
Security is the most important attribute of Gate.io's services. Gate.io Exchange is home to the highest security in the reviews of a third-party security testing organization. Its security used to rank first in the world (https://www.gate.io/article/17801). Thanks to the prominent technical team, Gate.io provides its clients with the safest investment services.
Additionally, Gate.io provides various detailed guidance for liquidity mining, in order to remove the difficulties of liquidity mining for users and make sure that they can participate rapidly and conveniently.
Attention to Investment Risks:
Liquidity mining products are not totally risk-free or break-even investment products. It is likely that users encounter impermanent loss, which may be serious when unilateral quotation occurs. As for impermanent loss, please refer to, “Science: What You Need to Know About Investments in Liquidity Mining Products.”
Science: What You Need to Know About Investments in Liquidity Mining Products
Gate.io Liquidity Mining For UNI, SHIB, DOGE, GT, FIL, LTC, XRP, DOT, ETH-BTC Is Now Available on Gate.io
Gate.io Cryptopedia: How to Get Liquidity Mining Yields?
Author: Gate.io Researcher: Charles.F
* The article only represents the researcher’s views and does not constitute any investment advice.
* Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.