Nightly Crypto
Nov 17, 2020

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Buying and selling changes the ratio of the Pool. For example, if I buy TokenX I am removing it from the Pool and thus there is less in the Pool, so Token X will be more expensive. The more liquidity in the Pool, the less of a price impact buying and selling will have. Arbitrage is what keeps the price stable relative to other exchanges. If Token X is on Binance and it is cheaper on Binance after a trade happened on Uniswap, professional market making bots will buy tokens on Binance and sell tokens on Uniswap, which will withdraw ETH from the Uniswap Pool, and thus bring the price back to equilibrium.

Now to specifically answer your question, as a liquidity provider, you will always provide liquidity of ETH and Token X at the price ratio that is currently in the Pool. LPs do not change the ratio, only buyers and sellers do.

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Nightly Crypto
Nightly Crypto

Written by Nightly Crypto

Blockchain, bitcoin and decentralized finance education

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