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During the last weeks whenever somebody was speaking of Diesel Pools, there was certainly at least one other person who would ask... What is a Diesel Pool?
That's why I believe it's a good idea to try to give an explanation here :-)
The traditional market through order books
When you open hive-engine or most of other markets, you often have an order book that contains all buy orders on one side and all sell orders on the other side. If somebody puts a new order that is matched by either buy or sell side, there is a transaction. That is how traditional markets work. This is how the price of shares, currencies, tokens are defined. The evolution of the different transactions draws what is commonly called the chart.
Liquidity pools
I believe that the first liquidity pools could be found on uniswap on the Ethereum blockchain. The principle is very simple but quite revolutionary.
Let's take the example of a market token A and token B
Liquidity providers deposit the same value of token A and token B in the liquidity pool.
Now if a person wants to swap token A for token B, he will add token A to the pool and extract token B. This means that the value of token A will decrease and the value of token B will increase.
With this transaction the price of these tokens will have changed. Obviously the token that is wanted more will go up in price and the other down in price. The liquidity pool will always hold 50% of its value in token A and 50% of its value in token B. If one token is added more than the other, the price change will compensate it.
It's quite a big innovation. Thanks to liquidity pools, you will always be able to swap your tokens at a more or less fixed price. It can give liquidity even to very small markets.
For Liquidity pools to work properly, there needs to be as much liquidity provided as possible. The more liquidity is provided, the more stable the prices are and the more swaps can be handled.
If there is little liquidity, there is a phenomena called slippage that will make the price change a lot even with little swaps.
Now let's turn to Diesel Pools
When you want to sell or buy Hive-engine tokens, you would probably do it over the market using order books. However it's now also possible to swap some tokens in Diesel Pools. These Diesel Pools are the same as the liquidity pools that you might find on ethereum or on binance smart chain. For the moment you can access these Diesel Pools over Tribaldex.
Very recently, the Hive Engine team has implemented the possibility to add reward pools for these Diesel Pools. This is a real game changer and brings us much closer to the Defi models proposed on ETH or BSC. People need an incentive to deposit their tokens into these Diesel Pools. Thanks to these reward pools, this is now possible.
Will Defi come to Hive?
In my opinion we have Defi on Hive for a long time. It simply looks different from the reward farming that you might find on ETH or BSC.
This reward farming is based on a business model that is centered around the costs related to the pools. These costs are then used to burn the token that is given as a reward to liquidity providers. If you have been on CUB finance, you will get CUBs for depositing your funds into the liquidity pools but you will also pay fees for depositing them. Thanks to these fees, CUB and LEO can be burned and the supply can be limited.
We will probably not see the same business model on Hive. There is however a huge advantage here on hive which is that we don't have any transaction costs. Even if these costs are lower on BSC than on ETH, they are still high compared to the zero costs on Hive.
We can do better on Hive
With these Diesel Pools we can reward liquidity providers with an inflationary token. We just need to find a way to find business models that provide sinks for these tokens. We need to come up with creative solutions but if Hive is full of something then it's full of creative people ;-).
Use Diesel Pools for arbitrage
Next time you need to swap your hive-engine tokens, check whether you don't get a better price over the Diesel Pools? We now have two parallel markets for some token pairs and it might be worth to explore potential price differences between Diesel pools and hive-engine markets.
Let's connect ! You can find me on these platforms:
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Linking this post in the wallet section of the Crypto Shots UI to explain to newbies what a Diesel pool is 😎👍
Cool, thanks for stopping by and for backlinking to this post!
I personally think one of the lacking things on HE and most crypto tends to be liquidity. This prevents many traders from even wanting to enter because they would lose a lot of money just entering and exiting due to the spread.
As for the effects of the diesel pools, I think it will probably keep the price more stable but it doesn't solve the underlying problem for tokens. The tokens will still have to find use cases and make people hold on to them. It only locks a certain portion off the market.
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Liquidity is definitely lacking and it translates in huges spreads. This makes the price finding process quite difficult.
I agree, a diesel pool alone will not be enough to make a token sustainable. Without good use cases a token isn't worth much. Thanks a lot for your comment!
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ENGAGEtokens.How does a liquidity provider earn in the Diesel Pools if there is no transaction cost? If I provide liquidity, say HIVE and DEC, what will I earn? And by when?
That was a question that I was asking myself as well. I'm not 100% sure about it but I saw that it's now possible to add a reward pool to a diesel pool. This reward pool works similarly like a mining pool. It's a lottery that gives away the token from the reward pool to the liquidity providers. The mecanisms are implemented but I believe there are no reward pools yet attached to any Diesel Pool.
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Ah, so no point putting the money in at the moment. Or is there any other benefit that I am unaware of. Either way, thanks @achim03! And thanks for the tip! :)
You are totally right. At the moment there is no benefit to deposit money into these Diesel Pools yet.
ENGAGEtokens.I'm very excited about Diesel pools and the opportunities that they can bring to tokens... Adding value to them, and also help with the volume... wLEO and bLEO is the "secret sauce" of LEO token that bring a lot of eyes to the project and tribe itself...
Let's see how will Diesel pools play out!
Looking forward to seeing what will happen once there are some rewards attached to these pools!
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ENGAGEtokens.Thanks for the explanation. I'm slowly getting to understand how these pools work.
If you're looking for a topic for another post could you write one that explains exactly how to do this?
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Thanks a lot for your feed-back! This might be a good topic for a new post ;-)
!ENGAGE 20
It would be great if you bring up another topic explaining how to do this step by step!
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Thanks for the feed-back and the suggestion!
ENGAGEtokens.I was just watching a video today that talked about arbitrage. If people actively start utilizing this using the diesel pool, wouldn't that skew the liquidity?
Actually the basic idea of these diesel pools would be to deliver liquidity even for illiquid markets. Because there is basically a possibility to exchange your tokens in any type of situations if you don't worry too much about the price. Combined with normal markets as you justly suggested, this offers the opportunity for arbitrage. Arbitrage has a big added value for a market because it generates movements. People would trade on a continous level to make a little profit from arbitrage. So the added liquidity from Diesel pools would generate added liquidity on the traditional market because of arbitrage seekers.
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ENGAGEtoday.That's a great overview of what diesel pools are and liquidity pools in general. I agree we used to have a form of Defi on Hive long before Uniswap did. It was (and still is) just different. Good advice about arbitrage possibilities.
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I think that people are hardly aware that there already some of these pools available. Imagine if these pools now come with rewards, I believe we would quickly see some quite significant amounts of Hive and other tokens being locked up in these tools. As you wrote in your post, this could have a big impact on hive prices... Thanks a lot for stopping by!
!ENGAGE 20
Oh yeah, I'm sure Diesel Pools will have quite a spectacular rise. And Hive with them.
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ENGAGEtokens.Even though Hive is answering the existing needs such as Tx fees or speed, we need to become more popular and build more cross-blockchain projects to be recognized by many crypto enthusiasts. Growing interest and liquidity can fix any problem that we have now ^^
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I believe that nobody thinks of hive when they want to invest or at least they don't associate it with defi. The crypto world is very dynamic. Yesterday Ethereum was the measure of everything but the success brought big problems with astronomical transactions fees. Then there was BSC that took a big market away from Ethereum. The question is will the fees grow as we witnessed on ETH because of the success the plaform encounters? If this is the case, this might open up the space for Hive...
Things in the good direction are being built and I believe we will come up with interesting solutions. Thanks a lot for your comment!
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ENGAGEtokens.