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Liquidity Pool
A Liquidity Pool in Uniswap allows for users to swap between two ERC-20 Tokens. In order to ensure there is liquidity for DOOR tokens, there is an existing Liquidity Pool that is funded by DOOR and continued to be supported through a portion of the transaction fees. This is outlined in the white paper.
Implementing a Liquidity Pool is key to ensure buyers and sellers can trade DOOR and allows for more stable price discovery.

Why Pools?

Uniswap is unique in that it doesn’t use an order book to derive the price of an asset or to match buyers and sellers of tokens. Instead, Uniswap uses what are called Liquidity Pools.
Liquidity is typically represented by discrete orders placed by individuals onto a centrally operated order book. A participant looking to provide liquidity or make markets must actively manage their orders, continuously updating them in response to the activity of others in the marketplace.
While order books are foundational to finance and work great for certain use cases, they suffer from a few important limitations that are especially magnified when applied to a decentralized or blockchain-native setting. Order books require intermediary infrastructure to host the order book and match orders. This creates points of control and adds additional layers of complexity. They also require active participation and management from market makers who usually use sophisticated infrastructure and algorithms, limiting participation to advanced traders. Order books were invented in a world with relatively few assets being traded, so it is not surprising they aren’t ideal for an ecosystem where anyone can create their own token and those tokens usually have low liquidity. In sum, with the infrastructural trade-offs presented by a platform like Ethereum, order books are not the native architecture for implementing a liquidity protocol on a blockchain.

Last modified 3mo ago
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Why Pools?