What are Liquidity Pools and How to Earn as a Liquidity Peer

Updated: Oct 6, 2021

Liquidity pools play a significant role in the DeFi ecosystem. Learn more about why they are important and how you can earn by joining XanPool's Liquidity Program.


What are Liquidity Pools and Liquidity Portal of XanPool?

The rise of decentralized finances demanded a need for liquidity pools. They act as one of the cornerstones for the current DeFi system. Liquidity pools play a key role in automated market makers (AMMs), borrow-lend protocols, yield farming, on-chain insurance, blockchain gaming, synthetic assets, etc.

What are liquidity pools?

A liquidity pool is a pool of funds or tokens locked in smart contracts. These funds can be used for exchanges, loans, and other applications. Users who provide funds or tokens to liquidity pools are known as liquidity providers (or liquidity peers).

Liquidity pools help to liquidate decentralized exchanges (DEXs) to minimize the problems of illiquidity. DeFi liquidity pools are innovative and they replace the traditional order book model used in centralized exchanges. The traditional market-making system is ineffective for a decentralized exchange. So, liquidity pools have become the go-to solution in DeFi. They offer automated liquidity for decentralized trading platforms continuously.

How does a liquidity pool work?

Let's take an example. A simple version of the DeFi liquidity pool will consist of two tokens in a smart contract, formed as a trading pair. If we take ETH and USDC trading pair, liquidity providers will contribute the equal value of ETH and USDT (1 ETH =1000 USDC).

When a person wants to trade ETH for USDC, he doesn’t need to wait for a counterparty to match his trade. Instead, he can do so with the help of a liquidity pool based on the funds deposited. This is how liquidity pools create liquidity on the trading platforms.

Liquidity providers get incentives for providing funds to the pool. They earn a share of trading fees paid by the user proportionate to their stake size. Since the automated market makers made the market more accessible, anyone can become a liquidity provider.

Liquidity portal in XanPool

XanPool is bridging the gap between traditional financial systems and cryptocurrencies. It is a fiat-to-cryptocurrency gateway that offers easy and quick conversion of fiat into crypto and vice versa. While transactions in cryptocurrencies are fast and easy, it is not the case when you try to convert crypto back into fiat. XanPool is solving the issue by making it easy to onboard and offboard these digital currencies.

Their liquidity portal serves as a platform for its users to buy and lock in the price. Building on top of their customer-to-customer (C2C) fiat gateways, they create liquidity pools in different markets, automating transactions for these peer-to-peer trades. Crypto native businesses partner with XanPool to provide easy on and offboarding trading experience for their users and helps grow the liquidity pool.

How to use XanPool’s liquidity portal

Let's use a scenario to understand how XanPool’s liquidity portal works. If the user wants to buy any altcoin from a partnered crypto exchange (OKEx wallet in this case), first he needs to go to the wallets page. The user needs to pay the amount in local currency to purchase an altcoin.

Usually, the person will send the coin to their wallet address. But, since we are using the liquidity portal, we will send the purchased coin to the OKEx wallet. Now, the user can lock the price on the liquidity portal. The purchased altcoin will be reflected on the user’s OKEx liquidity portal.

If the price of that altcoin increases in the market, the user can sell it directly in the local currency. It is possible to witness a slight loss of value when you buy and sell an altcoin due to transaction fees. But not to worry, the transaction fees charged by XanPool are one of the lowest compared to the other fiat-to-crypto providers.

Benefits of XanPool’s liquidity portal

Some of the major benefits of XanPool’s liquidity portal are,

  • Speed - With its automated market making technology, the liquidity peers does not need to oversee nor require any action to facilitate the transactions. Trades are made once the system confirms within a few minutes. This is equally important to end users who wants to secure the price of an altcoin, which can change by more than 10% in a minute in this volatile market.

  • Convenience - Users can purchase any altcoin directly and sell it in their local currency without having to convert it into an intermediary cryptocurrency. So, that makes XanPool’s liquidity portal convenient and easy for both end users and the liquidity peers.

How to become a liquidity peer on XanPool?

XanPool's liquidity peer program are currently offered to active XanPool users. It is also open to those who are interested in becoming one. If you're a crypto enthusiast who wants to make onboarding and offboarding easier, faster, and resilient, you can sign up to learn more.

  • Secure - XanPool does not take custody of the funds of its end users. So, the user will have complete custody of the funds which makes it more secure.

  • Convenience - Liquidity peers are not required to manually oversee or facilitate transactions once the account has been setup

  • Automated P2P trading - XanPool’s technology will automate all peer-to-peer trades so liquidity peers don't have to

  • No market maker fee - At the current moment, XanPool does not collect fees from users who wants to become a liquidity peer (or market maker)

  • Earn a fee for every transaction - Liquidity peers who successfully joined the program will earn a fee for every transaction

  • Transparent - Transactions often depends on market volume, country where they're based, and other external market factors. Liquidity peers are able to see the automated line of transactions in their dashboard

XanPool is currently offering its services in across 10 countries such as Hong Kong, Malaysia, Philippines, Thailand, India, Singapore, Indonesia, Australia, Korea, and New Zealand. Crypto users in these countries are able to use their local payment methods to buy and sell easily.