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⚖️ Liquidity Pools on DEX ⚖️
Explains how liquidity pools on decentral exchanges like pancake swap behave in the Teneo ecosystem
Besides the AMM another important part of the ecosystem is the existence of liquidity pools. With them Teneo creates trading pressure on the open market for arbitrage. As soon as the price of an underlying token or a tenXXX token changes in one pool, every other pool will follow because there are profit opportunities for arbitrage traders. The liquidity pool also gains reflows like the pools of AMPL getting rebases. As an example: LP tenETH/BUSD -> x * y = k -> 100* 100 = k -> reflow -> 101 * 100 = k -> the price goes down for tenETH. BUT: The AMM ratio does not change. So more arbitrage opportunities are generated by price differences and with this creating more arbitrage trading pressure.
How liquidity pools work: Uniswap
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