Improving Liquidity of the Ethereum Ecosystem

How do IDO launchpads drive more liquidity into DEXes? Besides an opportunity to talk and meet fellow crypto enthusiasts, the liquidity pools, which these launchpads enable, are also a powerful financial technology hub. It utilizes many features, which cryptocurrencies made possible for the first time in the history of humanity [Thomas]. The best examples here being decentralized tokenized liquidity [Laurent] and the automated market makers or AMMs.

Binance defines a liquidity pool as “a collection of funds locked in a smart contract. In exchange for providing their funds, customers earn trading fees from the trades that happen in their pool, proportional to their share of the total liquidity.” [Binance Academy].

It proceeds to define key liquidity pool types as:

1. AMMs — a kind of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets, i.e., the primary driver [White] behind Uniswap’s success [Capuozzo].

2. Yield farms or liquidity mines — which Project Alexandria defines as “the practi of staking or lending crypto assets to generate high returns or rewards in the form of additional cryptocurrency” [Vermaak], [Di Maggio], e.g., Yearn.finance protocol and its vaults [Finematics].

3. Fixed-swap pools — a method to control the bonding curves [Riady] via listing the projects within a pool at a fixed price during the token launch.

4. Crypto synths or synthetic asset trading platforms, e.g., Synthetix.io.

5. Name your own.

Existing DeFi launchpads [Prusso] use varying combinations of liquidity pool types, (hopefully) adding some value via curated project lists to participate in the pool and ensuring a communication platform (see above) for the pool participants. However, contrary to that, the degree of communication between the pool participants of the “industrial-scale” DEXes (think Uniswap or Binance DEX) is comparatively limited [Aslantas].

Of course, as is true in any fairy tale: the community and the liquidity gifts from the generosity fairy🧚🏾‍♀️of the existing DeFi launchpads come with their own 🎃pumpkins attached.