Liquidity Pools are typically one of the first concepts you will learn about in the DeFi. If you have ever traded crypto or any asset on a centralized exchange, you may have taken for granted that a seller (or buyer) is on the other side of your trade to fulfill your order. A centralized exchange often employs market makers to provide liquidity to facilitate order fulfillment. In the decentralized world, you (and others) are the market makers who provide liquidity, or capital, while gaining the ability to earn fees for doing so.
It is important to understand the risks when participating in DeFi products. Because most of us will be utilizing Liquidity Pools as an additional income stream, we should talk about the risks associated with them. Impermanent Loss is not the most intuitive concept, but is a core concept to learn. After reading this and other articles, watching videos, and looking at examples you should have a good idea of what it is and how to maximize your profits.
The reason most of us are here is because we are interested in the Flare Network in some form. One of the first ways for us as Spark (FLR) and F-Asset holders to participate in DeFi on the Flare Network is in the Flare Finance ecosystem. Flare Finance brings with it an entire suite of DeFi products from Liquidity Pools, to Yield Farming, to Loans and Mutual Funds. We will cover some beginner concepts and offerings of Flare Finance.
You may have seen or used stablecoins on an exchange to trade out of a position. In doing so you were probably looking for a value that remained constant, or “stable”, in volatile times. As the name implies, stablecoins are tokens that are stable in value and typically “pegged” to the value of an underlying asset, for example the US Dollar. Stablecoins thus far are usually pegged to the US Dollar because the value of USD remains constant in value and is the most widely used fiat currency. Stablecoins can be centralized (managed by an entity) or decentralized, managed by a smart contract. One of the first stablecoins set to be brought trustlessly onto the Flare Network is Aurei, by Trustline Inc.