A quick guide to
Also known as
Ethereum is a decentralized open-source blockchain system that features its own cryptocurrency, Ether. Often referred to by the currency symbol "ETH", it is a volatile asset and the price can fluctuate a lot. ETH is used as an asset in a large number of DeFi investment opportunities.
What is a single asset liquidity pool?
Single-asset pools are used by platforms like Aave, Bancor or Compound and they only contain one type of token such as just ETH or USDC or DAI tokens.
Users who add tokens to these pools are called liquidity providers, or LPs for short. Liquidity provision is at the core of Decentralised Finance, and a great starting point for anyone looking to get into DeFi.
These platforms then allow pooled tokens to be used by the market. In exchange for being able to use the liquidity being provided by these tokens, market participants will pay interests or fees for their use of this liquidity.
The amount of interest or fees that are earned by liquidity providers really depends on the market demand for liquidity in that token.
▷ Learn: Single asset Pools
Find out everything you need to know about single-asset pools in this short 2-minute video.
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What is a double asset liquidity pool?
Two sided pools are used by automated market maker platforms like Uniswap and Sushiswap. Two sided pools always have two different tokens, for example USDC and ETH is a popular two sided pool on both Uniswap and Sushi Swap.
Automated market makers are a new type of exchange, where the two sided pools allow quick and easy swapping between one asset type and the other - for example between USDC and ETH. The bigger the pool, the easier it is for the market to swap larger and larger amounts of these tokens. As trading is very popular in DeFi, these pools are used a lot.
Every time someone trades across these pools, the liquidity providers earn a little piece of the trading fees. As a result of the popularity of trading in DeFi, the trading fees can quickly add up and returns of 15% or more per annum in just trading fees is quite normal for liquidity providers to earn at the moment.
▷ Learn: Double asset Pools
Find out everything you need to know about double-asset pools in this short 2-minute video.
Why do people hold and trade
Head of Product Strategy
using DeFi since
Ethereum provided the platform that kick started the magical money printing world of DeFi. Never have I seen such incredible interest rates delivered on any type of asset in the traditional world. The rate of innovation and development is beautifully obvious and incredibly engaging to the point that it has become a true hobby.