The booming development of the DeFi ecosystem in 2020 not only promoted the recovery of the cryptocurrency market but also presented to the blockchain industry the achievements of Ethereum ecosystem construction in the past five years. DeFi has become the bellwether of the Ethereum ecosystem, and what underpins the future of the DeFi ecosystem are still DEX, stablecoins, and lending.
“Taking the path in Shu is harder than reaching the blue sky.” This famous line from a Chinese ancient poem is the most appropriate summary of how decentralized exchanges developed in the past decade. In the DeFi era, the decentralized trading protocol led by UniSwap has taken DEX out of the dead end of market expansion, which fired the first shot of the “decentralized transaction” revolution.
Indeed, the popularity of UniSwap is gradually changing the pattern of the entire cryptocurrency market, and the era dominated by centralized exchanges may become the past. Of course, the impact of UniSwap is much more than that, and yield farming is another important inspiration it brings to this market.
Yield farming, a new type of “Hodler” model
Yield farming is familiar to all new token investors in the era of DeFi. It is a new contractual agreement entered between the trading platform and the user, both of whom take what they need. The trading platform requires users to inject capital into the fund pool of the trading pair to optimize the liquidity of the trading market, and liquidity providers can gain passive income in this way, thereby fully mobilizing the value of their assets. That has created a new “Hodler” model.
Compared with derivative investment transactions such as spot trading, contract transactions, and option transactions, being a liquidity provider (LP) means fewer operations and lower thresholds for users. Of course, yield farming is not a source of huge profit. Due to the constant product formula applied, there is a drawback in the automated market-making environment: once there is a unilateral market, the liquidity provider may have to bear the investment damage caused by the impermanent loss. As for what is an impermanent loss, refer to CoinEx’s article “What is Impermanent Loss”.
In this case, for higher returns by providing liquidity, users still need certain investment skills and to grasp the rules of the platform.
Yield farming seems to be the exclusive right of decentralized exchanges for a long time. In fact, there is no so-called mutually exclusive relationship between it and centralized exchanges.
Therefore, to attract more users, many centralized exchanges have adopted this new financial management model.
CoinEx launches automated market-making function to help users earn passive income
On February 3, 2021, CoinEx launched a new service: an automated market-making function, and supported CET/USDT, AYA/USDT, LBC/USDT, FCH/USDT, and TRTL/USDT markets for AMM. More AMM markets will be supported in the future based on market demand.
CoinEx integrates AMM constant product market maker model with the order book as the trading mechanism. The system automatically converts the fund pool into an order book. Regardless of the size of the order book or the liquidity pool, this mechanism can provide liquidity for the market and further improve the liquidity of the exchange.
Users provide liquidity for the above five trading pairs in the AMM market on CoinEx, and CoinEx will allocate 60% of the transaction fees paid by all trading users in the market to all liquidity providers by their contributions to the fund pool. The income is settled once a day and automatically deposited into the user’s market-making account.
How to become a market maker in CoinEx and participate in yield farming?
First of all, you need to decide the AMM trading market, among the above five, for which you’re going to provide liquidity. At present, the five available AMM markets are CET/USDT, LBC/USDT, AYA/USDT, FCH/USDT, and TRTL/USDT.
Take CET/USDT for example:
1. Click “Exchange” on the website of CoinEx Exchange to enter the spot trading area
2. Find the entry to [Liquidity Pool] on the right side of the trading market and click [Add];
3. On the [Add Liquidity] page, enter the [Quantity] of the two cryptocurrencies to be added, and click [Add] after confirming all details;
After the above steps, liquidity has been added. If you need to withdraw liquidity, you need to click to enter the spot trading area, find the [Liquidity Pool] on the right and click [Remove].
Following the above steps, you can add or withdraw liquidity as a market maker. It’s only a matter of time before earning commissions easily.
It’s easy to maximize the value of all your idle assets.
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