Liquidity pools could be considered the lifeblood of decentralized finance. They make decentralized trading, lending, and borrowing possible by removing the need for an order book or a central party. They're typically automated systems based on smart contracts that adjust token prices based on supply and demand. Without liquidity pools, decentralized exchanges (DEXs) would not be able to function properly.
In this article, we'll show you how to lend your tokens to liquidity pools and earn yield on OKX DeFi. We'll also take a closer look at V3 liquidity pools on OKX DeFi, which allow you to lend tokens within custom price ranges and have better capital efficiency when market making.
How market making works
Market making in DeFi is essentially about providing liquidity to DEXs. You're putting up assets that people might want to trade – like ETH or SOL – and in return, you're getting a cut of trading fees. Pretty cool, right?When you're market making in DeFi, you're directly contributing to making the whole crypto ecosystem smoother and more efficient. You help make sure there are always enough assets for people to trade, which keeps price fluctuations in check.
An introduction to OKX DeFi
OKX DeFi lets you manage all your DeFi investments right from the OKX Wallet and serves as a powerful gateway to protocols like Aave, Curve, Compound, Yearn, and Arbitrum. With OKX DeFi, you can earn yield on your assets by either staking tokens or providing liquidity to DeFi protocols.The OKX DeFi interface includes features that make it easier than ever to earn from DeFi, such as one-click staking and CertiK scores that help you assess which protocols best suit your risk tolerance. We also automatically identify opportunities for you to earn yield based on the assets you hold in your OKX Wallet.Recently, we've also added V3 pools to OKX DeFi, which help you improve capital efficiency when market making.
V3 liquidity pools
V3 liquidity pools allow you to specify price ranges you want exposure to when providing liquidity, which results in better capital efficiency.For instance, stablecoins like USDT and USDC are typically worth about $1. As such, it doesn't make sense to provide liquidity for them at a wide range of prices. You can earn a much higher yield by providing liquidity at a narrower range, such as 0.995 to 1.005.Setting custom price ranges also helps manage fluctuations in price, as well as sudden drops in liquidity. With V3 pools, your assets are automatically swapped as the price approaches the upper or lower end of your range. This is done to maintain the liquidity of the pool and to help manage impermanent loss. Here are some examples:
If you provide liquidity to an ETH/USDC pool with a range of 1,000 to 2,000 USDC per ETH, your ETH will be swapped to USDC as ETH approaches 2,000.
The opposite happens if the price of ETH approaches $1,000. In this case, your USDC will be gradually swapped to ETH.
Suggested price ranges
V3 pools on OKX also dynamically suggest price ranges based on risk and token volatility. These price ranges are updated in real-time based on market conditions and users can choose between 'Safe', 'Standard', and 'Expert' price ranges.
Get started with OKX DeFi
On the OKX website
Create an OKX wallet on okx.com/web3 and head over to /web3/defi.
To access V3 liquidity pools, go to 'Explore' > 'Multiple crypto' > V3.
On the OKX app
To get started with OKX DeFi, download the OKX app, switch to wallet, and head over to the DeFi tab at the bottom of the screen. You'll notice there's a search tab at the top of the screen where you can search for opportunities to earn yield based on asset or protocol. To access V3 liquidity pools, go to 'Multiple crypto' > V3
Disclaimer:
THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO PROVIDE ANY INVESTMENT, TAX, OR LEGAL ADVICE, NOR SHOULD IT BE CONSIDERED AN OFFER TO PURCHASE OR SELL OR HOLD DIGITAL ASSETS. DIGITAL ASSET HOLDINGS, INCLUDING STABLECOINS, INVOLVE A HIGH DEGREE OF RISK, CAN FLUCTUATE GREATLY, AND CAN EVEN BECOME WORTHLESS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING OR HOLDING DIGITAL ASSETS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PLEASE CONSULT YOUR LEGAL/TAX/INVESTMENT PROFESSIONAL FOR QUESTIONS ABOUT YOUR SPECIFIC CIRCUMSTANCES.
