The Tech Quiz - Season 22

Peace be upon to all my steemit friend. I welcome to family of this Steem4Bloggers community in my post. How are you doing my steemit fellow? I am hale and hearty with your love and hope that you all will be same. This is the age of digital marketing, I will talk in this contest about liquidity, pros and cons. So, I am going to taking part in this contest which title is

The Tech Quiz - Season 22
and organized by @malikusman1 .

What is liquidity?

The change of assets in cash successfully without any cause and any enormous change in its expenses. On other hand we can say that the ease with which any asset can be turned into cash without materially changing its price is known as liquidity. It is very important to the effective buying and selling of any assets by user in the financial markets. Many variables, including trade volume, bid ask spread, market depth, ease of execution, asset type, and market circumstances, affect liquidity. Liquid assets have larger trading volumes and greater market depth. The most liquid asset is cash, which is followed by heavily traded assets like government bonds and major company equities. Liquidity tends to rise under stable and positive market environments.

Freepik

Did you provide liquidity to any dApp?

Not at all, I did not provide liquidity to any dApp. But I am interested in this and I want to provide liquidity to dApp in future. Still I trade with little priced token. I purchase token when it's price is loww. When I earn some profit I sell it and convert my income into rupees. Liquidity has its own market where a trader with large investment can provide liquidity to dApp. Thare are many dApps where we can get large profit by investing in it. If any person has good investment, he can get much profit by providing liquidity to any dApp.

Freepik

Pros and Cons of providing liquidity.

Pros

There are many pros of providing liquidity, some I mentioned following.

• Earning Fees: For exchange supplying liquidity to DeFi protocols, liquidity providers mostly get
  fees. This fee is paid to LPs according to their share of the liquidity pool and are derived from trading operations like swaps and trades.
• Passive Income: LPs can get passive income by providing liquidity, as long as their funds are in the liquidity pool. They will continue to receive fees. Those wishing to profit from their cryptocurrency investments without engaging in active trading can find this very attractive.
• Token Rewards: Liquidity providers can receive over charges from some DeFi protocols in the form of protocol tokens. These tokens can be valuable and offer LPs one more reason to take involved.
• Opportunities for Market Making: With the help of adding liquidity, LPs increase the market's efficiency and liquidity. It can help in price stabilization and lessen trader slippage.

Freepik

Cons

Impermanent Loss: When the value of one item in the liquidity pool change in relation to another, liquidity providers are sensitive to impermanent loss.

• Immovable Funds: This is immoveable fund. When a pool receives liquidity, the funds are usually locked up for a while and canbe subject to fines or penalties at the time of withdrawn.
• Market Risk: By offering liquidity, LPs take on the risk of changes in the market.
• Risks Associated with Smart Contracts: DeFi protocols depend on smart contracts to make trading and liquidity provisioning easier. There's always a chance that smart contracts have defects or weaknesses that might cost liquidity providers money.

  @safdarali