GIANT LIQUIDITY POOL! Verus' liquidity pools, auto market maker, reserve & fractional currencies.
Channel: VerusCoin Community
Date: 2021-02-10

The VerusCoin website: https://verus.io
The VerusCoin Discord server: https://verus.io/discord
The VerusCoin WIKI pages: https://wiki.verus.io
Hi, I’m Brian with Truth and Privacy talks.  Thanks for stopping in again!

Last time, I explained that Verus is a UTXO-based cryptocurrency with DeFi modules built into its consensus protocol.  
Today we’ll explain how liquidity pools, automated market makers and fractional currencies function in the Verus ecosystem.  

Verus is a foundational blockchain that builds key primitives at the consensus level of the protocol.  DeFi is one of those key primitives.

It is a challenge to comprehend DeFi because the terminology is being created as concepts develop.  Let’s define 3 terms:  ‘automated market maker’, ‘liquidity pool’ and ‘fractional currency’.

In a DeFi system, currencies are traded with a pool of liquidity, not individual people.  A pool of liquidity can include a variety of currencies in varying amounts.  Each liquidity pool is attached to a specific currency which is then valued based on the currencies in the pool.  

Consider a creation called “NewCurrency” which is fully backed by VRSC and ETH.  
Because it is 100% backed, NewCurrency’s value is the total of the equally divided currencies in the liquidity pool.  
If VRSC & Eth are each worth $500, then NewCurrency is worth $1,000, regardless of the mix in the pool.  
Even if NewCurrency has 1 VRSC and a thousand ETH in its liquidity pool, they still contribute 50/50 to NewCurrency’s value.
A Verus DeFi currency that is backed 100% can have many currencies in its pool and in many combinations.

Prices of fractional currencies like NewCurrency will fluctuate with their pools.  Because no one sets the price, it is fully automated.  
Anyone can interact with NewCurrency anytime because the market is always open.  This is called an “automated market maker”.

There is always liquidity because the pool can never be empty.  You can always add or remove VRSC and ETH.  

Why would someone want to convert their VRSC or ETH to NewCurrency?  Fractional currencies create numerous opportunities to provide enhanced DeFi services.  

First, NewCurrency’s constant-mix strategy can be an investment portfolio tool.  You hold one currency, but are exposed to different currencies.  Consider an ETF, an Exchange Traded Fund with one stock ticker that might comprise dozens or hundreds of stocks.  

Holding fractional currencies can provide opportunities to profit and/or mitigate risk.  For example, because currency values in the Verus ecosystem are based on the currencies’ blockchains, exchanges with misaligned prices will present solid arbitrage opportunities.
And, by holding NewCurrency you can earn fees from other people’s conversions.

In the Verus ecosystem we say a currency is ‘fractional’ when it has a liquidity pool attached.  The currencies in the pool of liquidity are called ‘reserve currencies’.

We showed how a fractional currency derives its value completely from its reserve currencies.  In Verus’ ecosystem, we can have fractional currencies that are less than 100% backed.  
Partially backed fractional currencies can be backed as little as 5% to as much as 95%.

Let’s convert from one reserve currency to another reserve currency.  
1st you convert a reserve currency to a fractional currency.  
Then you convert that fractional currency into a different one of its reserve currencies.

In the Verus ecosystem there is also a short-cut, called, “converting through a fractional currency”.  You don’t acquire the fractional currency, but convert through it to another reserve currency.  

For example, if you own VRSC, you can can convert it to ETH through NewCurrency.  The Verus protocol will search through all fractional currencies with both VRSC and ETH in its pool and present the best price 

There is always value and liquidity with fractional and reserve currencies.  By the away, all fractional currencies on the Verus blockchain must include VRSC as a reserve. 

A giant and effective system of liquidity is emerging!  Become part of the Verus Community.  See you on Discord.

Thank you for watching.  
Take Care