Best DeFi Liquidity Pools – Decoding the Next-gen Investments

best defi liquidity pools

Liquidity is the basic principle of all financial markets. Same concept here in the Crypto Universe, Liquidity is the fundamental need to operate transactions smoothly, efficiently, and quickly in the crypto realm. Liquidity pools are the advancement of DeFi Technology. Many consider these best defi liquidity pools as a supporting bone to DEXs. Lately, regardless of their need in the Crypto world, Liquidity pools have been emerging as a separate sector of revenue earning options in the Crypto space. 

One of the key aspects of the crypto space is to earn by avoiding intermediaries like banks or other regulatory authorities. Earning through the liquidity pool satisfies the characteristics of Crypto where one can act individually in a decentralized space to earn revenue. However, there are many of these best liquidity platforms available in the market. If you are new and looking for the best defi liquidity pool platforms we experts at Coinsclone can help you.

Let’s recall what these best defi liquidity pools are.

What are DeFi Liquidity Pools?

Liquidity pools are the type of pools in Defi where the Cryptos can be lock and swap using smart contracts to provide liquidity within the platform. The Automated Market Makers (AMMs) are the protocol that facilitates the entire liquidity process smoothly. Unlike traditional Order book models, the users here store their tokens within the pool and swap those tokens directly. 

The traditional Order book model had drawbacks like delayed service, high slippage cost, and matching engine issues. The AMMs in Liquidity pools regulate the entire process by eliminating third-party intervention. The digital assets are deposited within the pool and carry out the entire process by itself automatically. The more the digital assets deposited in the pool the more the liquidity is. This entire process allows the transactions to happen smoothly and efficiently. With its advantageous features like lower gas fees and decentralized nature of allowing any user to provide liquidity, it attracts a wide range of users. Using the AMMs any user can provide liquidity to earn rewards. This shows the significance of the Liquidity pool in today’s Crypto space.

Knowing about the basic concept of liquidity pools might make one wonder how these pools work exactly. To answer your arisen concern let’s get a glimpse of how these Liquidity pools work within the DeFi platform. 

How do DeFi Liquidity Pools Works?

Liquidity pools run using AMM (Automated Market Makers). AMM is an algorithm that self-regulates the transaction and finalizes the contracts between the traders. (i.e. buyers and sellers.) Usually, when a transaction is made in a liquidity pool, AMMs use mathematical formulas to calculate how many assets they need to swap to complete the trade. This makes sure that no use of third parties is needed to regulate the system. These defi liquidity pools make use of both Smart contracts and Crypto technology to gain both liquidity and profit.

The users of the pool become Liquidity Providers (LP), by providing liquidity to the platform. The LPs deposit the assets and receive a share of the pool’s assets in return. These incentives or rewards are known as Liquidity Tokens. These earned Liquidity tokens have a value and can be used within the DEX’s ecosystem. These Liquidity Tokens signify that the value of the incentive earned is proportional to the value of assets contributed. The AMMs regulate the entire process and govern the system. Also, these AMMs ensure that the price doesn’t change much and maintain a fair market price. 

The Best DeFi Liquidity Pool Platforms

The features and factors of each defi liquidity pool vary from one platform to another. Choosing a platform that provides the best defi liquidity pools and also fits the requirements of the user is an important aspect. Let’s get a glimpse of some best and popular platforms:

Uniswap

The first on the list of decentralized exchanges that provide the best defi liquidity pools is Uniswap. Running on the Ethereum blockchain, Uniswap allows users to trade ERC 20 tokens easily within the platform. As of now, the annual revenue of Uniswap is around $15 million, but as per some expert sources, this might reach $40 million by 2030. This platform allows users to trade ETH to any ERC20 tokens efficiently. Uniswap has many liquidity pools. Some of the popular liquidity pools on the list are ETH/USDC and ETH/USDT exchanges. Uniswap charges an exchange fee of 0.3% for each swap. The LPs earn a part of this exchange fee compensating the value that is contributed to the platform by them. Uniswap’s open-source nature allows any users to participate in the liquidity pools. 

Balancer

On the list of best defi liquidity pools, the next in line is Balancer. Balancer runs on different blockchain networks like Ethereum, Arbitium, Fantom, and Polygon. It offers many unique features that attract a wide range of Liquidity pool providers. In balancer liquidity pools, the users can customize the pools by adding or subtracting liquidity also while earning. The LPs in the balancer are provided with BAL tokens(native cryptocurrency of balancer) which give them a governance feature to vote upon the decision in the platforms. Among many DEFi platforms, the balancer offers the lowest swap rates from 0.0001% to a range of 10%. In 2021, the Bal tokens price range peaked at nearly $71. Currently, the annual revenue of Balancer is $13.5 million. 

Kyber Network

With an annual estimate revenue of  $ 23.5 million, Kyber is said to be one of the best defi liquidity pools among many Crypto users.  This Ethereum-based liquidity pool mostly focuses on user experience. The Kyber network’s native currency KNC plays an important role as the rewards are mostly offered with KNC. Using these KNC tokens the users stake their tokens and earn automatically as defined by the smart contracts.

Curve

Another Ethereum-based decentralized platform but best known for its feature of allowing users to trade stablecoins. They charge up to only 0.4% of trading of stablecoins which attracts many users. Like other platforms, Curve doesn’t have its own native coin, which it may launch soon. Curve has seven different pools and ERC20 stablecoin pairs. Curve ensures low slippage costs in trading between stablecoins, making them stand tall among other best-defi liquidity pools. With an estimated annual revenue of $ 49.7 million, the Curve is said to be one of the prominent platforms to provide liquidity and earn rewards.

Bancor

Bancor uses “Smart Tokens” which are automatically convertible to any other token in Bancor’s network protocol at a determined price. Unlike other platforms like Uniswap, Curve, or Balancer the Bancor also operates using AMMs(Automated Market Makers). Bancor’s liquidity pool is called Bancor Relay. The user is attract to their unique features of “Single Token Exposure” and  “Impermanent Loss Protection”. The Bancor allows users a feature to only stake one asset and maintain it against impermanent loss. These special features make Bancor the go-to safest option when looking for the platform that offers the best defi liquidity pools.

Factors to be Considered when Choosing the Best DeFi Liquidity Pools

Evaluate Platform

Before deciding upon the best Defi Liquidity pool platform, it is also essential to evaluate the platform entirely. Check about the community, reviews, and responses from users of the platform. Read whitepapers, and review the community support and previous encounters. This will help in understanding the platform better.

User-Friendly Platform

Check whether the Liquidity pool offers the token pair you chose to trade. Also selecting a user-friendly platform allows the users to easily track, stake, and maintain their liquidity in the platform easily.

Trade Volume

Trade Volume determines the profit LPs earn. The LPs can earn only when the swaps are done on the platform. The higher the trade the more the profits. The LPs can analyze the previous trade volume histories to determine frequent trade volumes. This is an important factor to look at when fishing for the best DeFi Liquidity pools.

Analyse TVL

The user should know about the depth of a liquidity pool before deciding upon the pool. The pool should have a higher amount of TVL (Total Value Locked) which reflects a reputable, stable, lower-risk platform. The higher the liquidity is provided the lower the price slippage rate and the better the trading experience.

Know about Incentives

Many DEX platforms provide Liquidity Pool features. These liquidity pool features vary on every DEX platform. The users should analyze the platform’s liquidity feature and fees that offers. The fees and incentives differ for every platform. Some platforms might offer lower or higher trading fees or features like yield farming, and governance tokens.

These are some of the important factors one should consider before choosing a platform to provide liquidity. However, you might now think about opening other tabs to research on best DeFi platforms that offer cool Liquidity pooling features. Don’t worry we have drafted a list of platforms that offer the best defi liquidity pools in the Crypto space.

These best defi liquidity pools and their factors simultaneously provide various advantages to the users. Let’s see about the major benefits of using these Liquidity pools. 

Benefits of DeFi Liquidity Pools

Easy Swapping

Liquidity pool allows its users with an easy token-swapping process. The pool users can smoothly swap their tokens directly using AMM protocol without relying on any centralized methods. This eliminates the critical process of finding trading partners. The users can find reliable partners with the same goal within the pool.

Passive Income

Their decentralized nature allows any users to enter into the pool to provide liquidity. The liquidity providers earn rewards for doing so. This attracts many users, as the user isn’t trading them. The user just locks the said digital assets to give liquidity to the platform.

Less Slippage

Liquidity pools also help in reducing slippage costs which is one common problem in every order-based book model. Mostly larger trades lead to price slippages, but by providing constant liquidity, the price slippage can be minimized.

Flexibility

The Liquidity pools are flexible to their users. By the feature of supporting a wide range of tokens, these pools attract many users. They support many token pairs that can be swap up to the user’s own preferences.

Governance

Liquidity Providers are in most cases provided with governance tokens. The governance tokens give them the right to vote. The LP token holders are involved in the decision-making process and vote towards the upliftment and development of the platform.

Liquidity pools offer many beneficial features and potential use cases. But if you are looking for a platform that offers the best Defi liquidity pools, there are some beneficial factors to know before. Choosing the best defi liquidity pool platform that fits the user’s requirement is one easy option. Let’s glimpse at some of those factors to consider before choosing the best Defi liquidity pool in the next section.

Many DEX platforms provide the best defi liquidity pooling features. But these are some of the best DeFi liquidity pools which are widely prefer among Crypto Users. With the growing advancement in the Crypto world, Liquidity pools are one mighty way one can choose to enter the DeFi world.

In the landscape of DeFi, Liquidity pools play an important role. One can earn either by participating in Liquidity pools or by creating their own liquidity pools. So basically you can create your DeFi platform like Uniswap or Balancer and customize the platform according to your needs. There are many development companies and other freelancers to help you out. So if you are a startup thinking of exploring the vast realms of the DeFi world then you are at the right place. Though one can get in touch with any freelancers to build their own DeFi platform, doing it professionally is one easy and promising way.

Wrapping Up

Coinsclone is one of the best DeFi Development Company available in the market. We people at Coinsclone are built with handpicked Crypto experts and professionals. We offer the best services at affordable rates of high quality. Coinsclone prioritizes clients’ needs and strategies our business up to clients’ requirements. We are offering a demo talk service free of cost where you can directly get in touch with our experts. We hope Coinsclone will be your ultimate guide in the Crypto journey.