Liquidity in the financial markets refers to the ease with which an asset can be converted into cash. It is the coin’s ability to be easily converted into cash or other coins in the context of cryptocurrencies and is required for all tradable assets, including cryptocurrencies. Crimson from Apeswap is the guest speaker for this episode of Diving into Crypto, and he discusses the importance of liquidity in the context of cryptocurrencies.
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Transcript
NAVIGATING LIQUIDITY - APESWAP
Participants:
Neikita Desouza ( Host)
Crimson ( Business Development Manager at ApeSwap)
Sheldon (Community Manager at AdLunam Inc)
Narrator
Welcome to Diving Into Crypto. Diving Into Crypto, a weekly series where thought leaders share insights, strategies, and insider stories about all things crypto and Web3, brought to you by AdLunam.
Neikita Desouza
All righty, so good day to everybody. I think we should give them a few more minutes to join in. And good day to whoever is listening in today. So we have Crimson in the house. For those of you who don't know, we will be diving into crypto today with Crimson, who is from ApeSwap, who is the business development manager, which is one of the most connected DeFI hubs. And for those of you who are newbies or veterans, he is one of our crypto experts in building future wealth. So welcome aboard, Crimson.
Crimson
Thank you. I appreciate the intro.
Neikita Desouza
All right, so I think let's give a few people a time to join and then we can start. So it looks like the market has been green today. I just hope it greens up throughout for the rest of the week and months to come.
Crimson
Yeah, the day is young.
Neikita Desouza
So if America is waking up looking at a green grass look good, let's hope it greens up throughout the week and month. All right, so let's start, Crimson. So we all know what liquidity is about and how important it is in crypto. And as we all know, the measure of health of any market you could look at is the trading volume, the volatility and other technical indicators. And the most important factor is where we need your expertise about navigating and taking us and navigating through liquidity right now. So can you shed some light about how important is liquidity in crypto?
Crimson
Yeah, so I mean, liquidity is obviously super important. Without deep liquidity, you can't make any type of trades go through. And what we see is a lot of times you see projects doing things like trying to split the liquidity up too many ways. And what they're doing is essentially creating a lot of little pools where big trades can't go through and basically pushing away those whales or those larger trades. It's causing a big price impact and that can just be super detrimental token price and kind of scare away users from using that platform. And obviously there's a lot of ways to go about evading that or kind of making that problem go away. But as we see, if you're pairing your liquidity with something like B and B and B is dropping and your token is dropping, it can become a really complicated issue of like, how do you keep your liquidity up when all your assets or all the assets that are in there are dropping.
Neikita Desouza
Right, absolutely. So, yeah, that's the most important factor right now. And what do you think? How is it going to build in terms of the market? How do you think it's going to pan out? How do people so just for all our viewers right now? I just wanted to make sure that we let you know that what information is shared right now is strictly for educational purposes. So just wanted you to shed some more light about how important and how does a liquidity pool work in crypto.
Crimson
Oh, yes, sorry. I should have probably started out with more of the basics there, right?
Neikita Desouza
Yeah, absolutely. Because I'm thinking over here we have people who are newbies as well as the veterans in crypto, of course.
Crimson
Yeah. So basically how a liquidity pool works is you pair two assets together and it's called a pool because you're dipping your bucket into one asset and pulling out the other and vice versa. Typically on BNB chain, you'd be pairing your token with something like BUSD or BNB, but obviously you can actually pair with any asset. There's maybe more transactions going on behind the scenes. If you're pairing with, let's say, another Altcoin, that's going to eventually kind of have to go through a pool where it's traded into BNB then traded into your token as well. So there's going to be more transactions happening there. But that's why people standard the standard would be on BNB chain would be paired with BNB or BUSD. But obviously there's other options there.
Neikita Desouza
Right? Absolutely. Do you also believe that it will work on multichain networks as well?
Crimson
When you say it'll work, what do you mean exactly?
Neikita Desouza
Will the transaction be seamless even if it's on a multichain like BSC or Ethereum or any of because you see in the current crypto market, most of the projects want to go on multichains. We wanted to know if assets can be moved between chains.
Crimson
Yeah. So there's a bunch of really good bridges that are doing that right now and kind of like figuring out those problems as we go along. So I think the further we get in the future and the more we kind of work with these bridging platforms, the easier it gets to have one token across multiple chains. And as there's more and more capital, efficiency plays as well. You don't need to have as much liquidity in total to be able to make those trades across chains as well, right?
Neikita Desouza
Absolutely. And for the sake of our users, what is a better source of income? I mean, how would a person earn passive income on the DeFi?
Crimson
There's definitely different types of farming that can be a great source of passive income. You just got to watch out for the price of those assets that you're farming, that if they're going down a lot or going up a lot, obviously you can lose some money there in the process. And I think it's really important to read up and understand when you're making money and when you're not making money, especially in a market like this, where it feels safe to hold some assets, or maybe you're farming with something paired with stablecoin, and it could be a lot more safe of an option. But you have to really pay attention so you're kind of not losing money where you think you're making money. We found that kind of basic liquidity mining is a really good option to bring attention to a project, especially right off the bat.
Crimson
So there's utility for your token right away when you kind of launch your token, launch your project, but in the long run you can only liquidity mine for so long before your token supply runs out. And so that's a problem we're working on a solution to right now.
Neikita Desouza
Can you shed some more light about the solutions that you've been working on?
Crimson
Yeah, we released a product recently called Treasury Bills. And the point here is kind of moving users or projects from renting liquidity to owning that liquidity. When I'm saying renting, it's like if you have a certain amount of tokens being emitted as an incentive for users to stake their LP tokens, that's a finite supply. Right. You're giving those away every day and then at the end those incentives go away and users will eventually want to pull their tokens back out because they're not earning that anymore. Go ahead. Sp anyways, so what we're creating is something called Treasury Bills, which actually we're releasing a new round of this week, I think, today. And how they work is they essentially work similar to bonds where you can sell your tokens at a discounted price in the future for protocol owned liquidity that'll be basically locked on the platform, but when it unlocks, you own that liquidity instead of kind of just renting it from users.
Crimson
In the short term.
Neikita Desouza
That sounds very interesting, especially when you can relate it to what's happening in the fiat world with bonds. Then people who actually take this out will be able to understand the process already. And that's what you're aiming at, is it?
Crimson
Exactly. And I know when you think of bonds, right, it doesn't sound super sexy, but they've been really prevalent and they've been around for a reason. And there's a reason like in Trad by people kind of trade bonds and there is a bond market like that and so we're building an aftermarket for those as well. They are NFT. So it should be really easy to kind of have that aftermarket and have a lot of interesting trades going on and kind of see how that builds.
Neikita Desouza
Right? Absolutely. It's very interesting things that you've shared and love to hear your insights from you. Crimson, what else could you tell us about in terms of liquidity? Can you help us understand Ape swap? Where did that name come from? Obviously there is something got to do with swapping. So can you shed some light about the benefits of swapping and how do I swap in liquid?
Crimson
The benefits of swapping on our decks or the benefits of swapping in general?
Neikita Desouza
In general, you can start in general and then how it works on your decks as well, of course.
Crimson
So the benefit of swapping in general, especially on BNB chain, is you can go from one asset you have to the other asset and pay a very small fee. And that's what I was saying before, too, right. If you have a large liquidity pool, you can pay a very small fee and have a very small price impact and own those new Tokens right versus if the liquidity pool is very small, you may have to make multiple transactions, pay the fee multiple times, have large price impacts you're changing the price of the token a lot just during those trades. And so that's what were saying before is those large liquidity pools are super helpful in that way because they just make the trading experience more satisfying and better for everyone.
Neikita Desouza
I'm sorry, I'm speaking on mute. So what do you do differently on your decks?
Crimson
So, honestly, in terms of actual trading, we are a pancake swap fork at the very base level. So trading is pretty similar on our decks as it would be to any other major decks. What we do differently here at ApeSwap is we actually take an approach of wanting to provide services to projects and trying to make the experience better for projects working in this space. And we do that a couple of different ways. Right. We have leveraged ourselves as basically a D Five hub. We realized, being a Dex in this space, we have a ton of connections. We talk to launch pads all the time, we talk to VCs all the time, marketers like Bridging platforms, whatnot? So one of the benefits of coming to Apeswap as a project is you can come here, get connected to all the things you're looking for, and we see like, I mean, obviously crypto is fairly new and there's a lot of new players in the space all the time.
Crimson
And so a lot of people come in, maybe coming from TradFi something else, and they don't have all these connections right off the bat and then kind of come get hooked up in our hub and get connected, finish their raise up, get some good marketing, and then kind of have access to all of our services. And we have a lot of liquidity mining and a lot of deepening liquidity services that you won't see on other taxes.
Neikita Desouza
Well, that's right-.
Sheldon
Hey. Hi, Crimson. I think we just lost Neikita in this space. I think she'll be back soon. So to take this forward, Crimson, I have a question for you. How exactly we can find out the best liquidity providers in the market?
Crimson
That's a good question. What do you mean exactly by the best liquidity providers?
Sheldon
Liquidity providers, in the sense one thing is exactly like market makers. There's also people who actually help in market making. Right? So somewhat related to that.
Crimson
Okay, I think I see what you mean. I guess a lot of those liquidity providers are using DEXes to do the farming, and that's, I guess, probably the best place to find them. And you can see which contracts are where those whales lie.
Sheldon
So by the way, the other question that we have, the asset allocation. Should that be age based or should be goal based?
Crimson
One more time on that. I'm sorry.
Sheldon
The asset allocation that we do in the liquidity pools, should that be like age based or goal based? That's the question.
Crimson
Age based or goals based. So, like, how much liquidity you're looking for to have in there?
Sheldon
Yes. Correct.
Crimson
Yeah. So that's a great question. A lot of that's going to come down to a lot of things that have to do with the tokenomics. Right. So how big is the market cap? How much volume is trading on that token? Not every token necessarily needs to have the deepest liquidity, like a million dollars of liquidity all the time. And there's a lot of time where those assets could maybe be used elsewhere.
Sheldon
Got it.
Crimson
Basically, it does come down to in real time, when that volume hits, we want to make sure the liquidity is deep enough to satisfy all those different trades. And in times when it's not quite as important.
Sheldon
Got it. So however, you already stated that there's something that's launching from the ApeSwap end. Is there anything else in the next quarter that is going to launch from your end? Because right now the markets have really turned, and I think in terms of volume, it has been affected to all the crypto markets. So what are the plans in the next quarter from your end, at least from the ApeSwap's end?
Crimson
No, that's a great question. So in terms of other things coming from our end, I don't think I have any that I can leak right here on the call right now, but potentially in the near future, we should be able to. But yeah, with the market down like this, we kind of see this as an opportunity to kind of keep moving forward, keep making really good connections, keep building our DeFi hub, and kind of keep seeking out in a bear market, you really kind of see what people need the most. So it's been very helpful for us to identify what tooling to kind of work on next and how to provide the most value in this market.
Sheldon
Got it. So, Crimson, it's a question that everyone is actually curious. Everyone in the market actually have a lot of doubts regarding this. So, you know, the case that happened with the Three Arrow Capital and MicroStrategy is also it's very near to get liquidated. Even Celsius, the three main companies are actually in a stage of being liquidated. As of now, they haven't been liquidated. So what are your takes on that? What are your takes on that? Actually?
Crimson
Yeah, no, that's an interesting question. I think it's important to pay attention to how much we're leveraging ourselves. And I think to some degree, it's maybe good for people to at least see that this can happen, that leverage is not as safe as you thought it was or really read into what you're investing in and really pay attention and kind of know the risk, because we don't want everyone to lose their money. We don't want people getting liquidated, and we don't want to be running into these issues. And it's kind of been like a bit of a snowball effect recently, but I think this is going to be a great learning experience for a lot of DeFi users.
Sheldon
Yeah, totally. And we all are learning a lot from all that stuff. And always taking margin loans is always very risky, at least in this particular market. And it has always been at least for me, it has always been risky personally. By taking margin loan, I have been liquidated many times and I've learned a lot. So everyone out there should really be very careful with the margin trading and all that stuff.
Crimson
Yeah, I completely agree. And, I mean, when you look at the numbers and you're like, oh, that's an insane return, how am I getting that? It should be a little bit of a red flag and you should kind of do some research and kind of figure out how those numbers are possible. And typically, it's like that money is not being printed out of thin air.
Sheldon
Totally.
Neikita Dsouza
Hello, it's sound testing. I'm sorry, guys, I'm back. I think, Crimson, I've lost quite a bit of what we've discussed, but I'm sure our listeners, you're very excited about what you've had to share so far.
Crimson
Well, I'm glad you're back, but we had fun while you were gone.
Neikita Dsouza
Oh, really? I guess that's what technology is all about, right? Like, you just make it, you try to make things perfect and then somewhere down the line, it just backfires.
Crimson
Yeah. No, 100%. I've had multiple times trying to get into spaces and I've had issues with spaces before too, so there's nothing you can do about it. It's a bit of a new part of the platform, so I think there's a couple of kinks I got to get worked out.
Neikita Dsouza
All right, well, thank you so much for sharing your insights, Crimson. It was lovely hosting you on the show today and you've brought a lot to the table and I'm sure our listeners have been thrilled to listen to what you had to share. And for those of you who don't know me, I think I forgot to introduce myself at the start. I'm so excited to introduce you. So I'm Nikki, your host from AdLunam, and you know where to find us on adlunam.cc. Lovely talking to you today and thank you so much for sharing your insight. This was a great show and we will talk to you. We'll see you around.
Crimson
I appreciate it. Yeah, it was great being here, and hopefully sometime in the future, I'll hop on another one.
Neikita Dsouza
All right? Absolutely. All right, talk to you. Bye.
