Foundation Pools and Power Pools
Decentralized Finance revolution which was started by Uniswap in 2018 has come a long way since then—with the year 2022 being the key year that has been filled with launches of cutting-edge DeFi technology.
Technologists, entrepreneurs and researchers have been looking for impermanent loss and high transaction costs solutions for almost 4 years now, and although some solutions have been found—they are far from the ultimate resolution of the aforementioned problems.
And that is where Hedera Hashgraph and Metastable come in.
Hedera’s cutting edge hashgraph technology allows high TPS, high security, fast finality and most importantly—extremely low transaction fees.
All these factors being present in a technology are the key in manifesting a global DeFi system.
More is required, however, for the true large scale adoption of the Decentralized Finance technology. If a DeFi ecosystem is to garner a large amount of users it must possess a high level of practicality, be friendly to new users and also provide the ability to generate large APY on crypto deposits.
The Metastable team made sure to deliver on these factors—with Liquidity Portfolios. Liquidity Portfolios allow users to swap a token for a wide array of other tokens, either through the portfolio or through an innovation called “Virtual Pairs”.
To further ensure that the innovation is utilized to its maximal potential—Liquidity Portfolios have been utilized in two drastically different ways. Before we jump into these two different types of liquidity portfolios—lets first take a look under the hood of the cutting edge concept called Liquidity Portfolios.
Liquidity portfolios are liquidity pools that can contain more than two types of tokens and hence function completely differently than liquidity pools, although impermanent loss is still applicable. The impermanent loss is, however, in the case of liquidity portfolios—spread out across all tokens in the portfolio. This results in significant reduction of impermanent loss, even by ten times!
This is achieved through a simple mechanism—when a user provides liquidity into a liquidity portfolio, he or she acquires a share of the whole portfolio, not a share of specific tokens or token. This evens out the impermanent loss and also makes Liquidity Provision a much more financially feasible concept because LPS receive trading fees revenue from every transaction in a portfolio.
Likewise, Liquidity Portfolios make a much more attractive crypto option as they essentially act as an index fund of a specific industry, blockchain or crypto branch that is protected from low quality assets. This means newbie crypto users can acquire a token in a specific portfolio with ease because that asset is most likely a better bet than those that are not in that portfolio.
The reason behind this is because portfolios are protected from low quality assets and have new high quality assets added to the portfolio.
On Metastable, users will be able to choose from a wide variety of portfolios, such as:
- Index Portfolios (e.g.. “top ten crypto ecosystems”)
- Special Tokens (e.g. sports club tokens)
- Verticals Portfolios (e.g. music, gaming or sports)
- Specific Technology-related Portfolios (e.g. Virtual Reality or NFTs)
- Blockchain-specific Portfolios (e.g. best Ethereum or Hedera projects’ tokens)
As mentioned before, conceptually there are two different types of liquidity portfolios, so let’s jump right to them.
Foundation pools are intended to be exactly that—the Foundation of Hedera’s Synthetic Ecosystem. These pools will contain between four and six different types of cryptocurrencies to maintain high liquidity and low slippage, or in other words—to maintain large token reserves.
The intended purpose of the foundation pools is to build extremely deep liquidity accessible by Hedera’s crypto pioneers. Ideally these pools will contain the most popular tokens being traded within the Hedera Ecosystem, wherein popularity in this case would be determined by daily traded volume.
Users and protocols are incentivized to provide liquidity to these pools through the standard approach of providing trading fees generated by the pools as well as gaining precious $META tokens emitted to each pool.
Users and protocols will be able to create custom pools which they will curate. This means that either users, a specific set of users, or a protocol will be able to create a pool and decide which tokens are to be part of their pool.
The purpose of these pools is to allow users and protocols to offer a wider range of assets that are not necessarily the most “popular”, or in other words traded, cryptocurrency. This means that although Power Pools will not have liquidity as deep as that of the Foundation Pools—the token types present in the Power Pools will certainly warrant great attention from Hedera Pioneers.
There is much more to Liquidity Portfolios than meets the eye. They are coupled by a large variety of various innovative mechanisms that supercharge the portfolios efficiency and utility.
Some of these innovations are the Dynamic Reserve model, Virtual Pairs, Liquidity Portfolio managers and more.
And these are only the innovations that have already been developed or will soon finish their development cycle—which means much more is coming.
Goodbye Impermanent Loss, impracticality and inefficient DeFi.
Disclaimer: This is a sponsored article.