AMMs APY
CEX DEX
Gas fee Impermanent loss
Liquidity Liquidity pool
Limit order Market volatility
Slippage Stake
Token Transaction hash
Yield


AMMs

AMM stands for Automated Market Maker. An AMM is a decentralized trading pool that allows market participants to exchange cryptocurrencies. Unlike centralized exchanges that use order books, AMMs are not maintained by a central authority but rather depend on market participants to provide liquidity via a liquidity pool. Emeris connects directly to AMMs via decentralized exchanges such as the Gravity DEX protocol for all transactions. (more DEXs to be added soon).

APY

APY stands for Annual Percentage Yield. APY is one of the most commonly used terms in DeFi. It is used to describe the return on investment one can expect from an asset over a one year period. APYs tend to fluctuate constantly therefore they are used more as an approximate return. For example:

  • If you were to stake $100 worth of ATOM at a rate of 15% APY, you can expect at $15 return on investment after 1 year should the price of ATOM remain fairly stable. One way to increase the return on investment would be to compound the daily rewards using the Auto Compound feature (coming soon) on Emeris.

CEX

A CEX is a centralized exchange with a corporate structure and a physical address, and users typically have to undergo a KYC process. Popular CEXs would be Binance, Crypto.com and Kraken. Transactions are not peer-to-peer and always go through an intermediary. Crypto wallets connected to a CEX are normally custodial wallets where the users do not hold the private keys.

DEX

A DEX is a decentralized exchange that allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary. This is made possible with the use of non-custodial crypto wallets where the users hold the private keys.

Some examples of DEXs would be the Gravity DEX protocol, Uniswap, and PancakeSwap. Some of the most commonly used non-custodial wallet extensions would be Keplr and Metamask, while some of the most commonly used non-custodial hardware wallets are Ledger and Trezor.

Gas fee

Every transaction sent via the blockchain requires a small fee. We refer to this as the "Gas fee." This is a fee paid to validators as an incentive and compensation for validating transactions. The gas fee is always paid in the native token of the blockchain.

On Emeris, the gas fee is set by default, but users can customize it if they wish to opt for a higher or lower fee. The higher the gas fee, the faster the transaction will be processed and the least likely it will fail. It is good practice to set a slightly higher than required gas fee to avoid the transaction failing.

Please note that you will lose your gas fees should a transaction fail due to insufficient gas fees. Gas fees cannot be refunded.

A step-by-step guide on how to customize gas fees on Emeris can be found HERE.

Impermanent loss

Impermanent loss refers to the potential loss of your deposited assets in a liquidity pool due to one or both tokens' downward price swing. With a decentralized exchange, liquidity is provided by the market participants in a balanced ratio of 50/50 (see liquidity pools). Therefore, when you deposit two assets and if the price of one or both changes, you might withdraw less than what you deposited. However, the rewards gained from the liquidity pool often make up for impermanent loss. For example:

  • The current exchange rate between ATOM and OSMO is 4 OSMO for 1 ATOM

  • I stake 1 ATOM and 4 OSMO in the respective pool on Emeris (50/50 ratio rule)

  • In a month 1 ATOM is now equal to 8 OSMO

  • If I held my initial 1 ATOM and 4 OSMO, I would have gained 50% (4 OSMO is the same, but my ATOM is now worth 8 OSMO)

  • Being a participant in an AMM pool on Emeris, my gain is less than the 50% I would have made if I has simply held the assets for that month

This difference between holding two assets and staking them in a pool is called impermanent loss. It is called that because the loss is not realized unless the stake is withdrawn. If 1 ATOM goes back to 4 OSMO and I withdraw my funds then there wouldn’t be any impermanent loss.

Liquidity

Liquidity refers to how easy an asset or token can be exchanged for another asset without affecting its market price. In other words, liquidity describes the degree to which an asset can be quickly bought or sold in the market. The more demand there is for a token, the more liquidity the token will have.

Liquidity pool

Liquidity pools enable users to buy and sell crypto on decentralized exchanges such as the Gravity DEX protocol without the need for centralized market makers. Basically, a liquidity pool is a collection of tokens locked in a smart contract. Liquidity pools are used to facilitate decentralized trading between assets. Liquidity pools guarantee liquidity at every price level and every pool always consists of two tokens.

Anyone can delegate their tokens to a pool to help provide liquidity and in return, will be compensated daily by receiving a percentage of the fees for every transaction executed on that pool. For example:

  • One of the most traded pools is the ATOM/OSMO pool. If you would like to earn rewards for helping provide liquidity to this pool, you would simply need to deposit an amount of ATOM with the same amount as OSMO. If one ATOM equals 4 OSMO and you deposited 2 ATOM, you would also need to deposit 8 OSMO. The ratio needs to be 50/50.

There are many benefits to providing liquidity but it does come with the risk of incurring impermanent loss. It is recommended to understand how impermanent loss works and how it can affect you before committing your tokens to a pool.

Limit order

A limit order is the use of a pre-specified price to buy or sell an asset. Emeris only uses limit orders for swaps and this guarantees your swap will only be filled at your predetermined price point or better. The limit order price on Emeris is not set by the user, it is set automatically by the DEX to find the best possible price for every swap.

When using a limit order to buy an asset, the order can only be executed at the limit price or lower. When selling an asset with a limit order, the opposite is true, the asset can only be sold at the limit price or higher.

  • For example, if a trader is looking to swap ATOM for OSMO at a price of 4 OSMO for 1 ATOM with a limit order, the swap will only execute when the price reaches 4 OSMO or more for 1 ATOM and will never execute the swap at less than 4 OSMO per 1 ATOM.

By using a limit order, the trader is guaranteed to pay the desired price or less. Although the price is guaranteed, the filling of the entire swap is not. This is because there is a delay in time (a few seconds) from when the swap is executed to when the swap is filled. The exchange will fill as much of the swap as it can for as long as the token purchased remains at the limit price.

During periods of high market volatility, the chances of the entire swap being executed is lower compared to periods of lower market volatility.

Market volatility

Unlike a stable market where the price of a token will move higher or lower slowly and steadily, when markets are volatile, the price of a token fluctuates rapidly over a short period of time. Volatile markets often lead to new price highs or new price lows and have several impacts on trading conditions.

What causes market volatility?

Various factors can influence market volatility. These can include big institutions moving funds, monetary policies, changes to the blockchain, and other major global events.

How does market volatility impact my trades?

During volatile market conditions many traders can get spooked. This is especially true for novice traders and short term traders. Volatile markets are inevitable, especially in the crypto world. It's not uncommon for the price of a token to fluctuate rapidly over a short period of time. Some of the things to consider during volatile markets may include:

  • Volatile market conditions and heavy volume trading come hand in hand. This may cause delays in trade execution.

  • There can be significant price discrepancies between the quote you receive and the price at which your trade is executed due to the trade execution delays.

  • Higher chances of slippage

  • Gas fees are dynamic and fluctuate based on transactions being broadcasted into the blockchain. Gas fees will adjust based on how many users are interacting with the network. During periods of high volatility, users can expect higher than normal transaction costs.

Slippage

In a short sentence: “Slippage is a difference in the asset price from when a trade is placed to when a trade is completed.”

Crypto prices can change quickly, allowing what is known as slippage to occur. This happens due to the delay that exists between the point of placing a trade to the time that the trade is completed. This usually takes only a few seconds but the asset price can fluctuate during this time.

Although slippage can occur at any time, it is more prevalent during periods of high market volatility when market orders are used. Slippage can also occur when a large order is executed but there isn't enough volume at the chosen price to fill the order.

Check out our slippage article for a more detailed description of slippage and how it can affect your trading.

Stake

Staking is a process used to verify cryptocurrency transactions and help secure the blockchain network. It involves committing the tokens you hold to support a blockchain network in confirming transactions and in return, you earn rewards.

Token

Unlike crypto coins which have their own standalone blockchain such as Bitcoin, Ethereum and XRP, tokens are a representation of an asset and do not necessarily have their own blockchain. They can live on another blockchain, for example ERC-20 tokens. Tokens can be held for value, traded, and ‘staked’ to earn interest, among other things. Tokens typically represent a democratic governance of a blockchain.

Transaction hash

A transaction hash (commonly known as TX Hash or Tx ID) is a unique string of characters that identifies each transaction on a blockchain. A transaction hash usually looks like a random set of letters and numbers and is used to locate a specific transaction on the blockchain. Every transaction has a unique transaction ID and the details of each transaction can be viewed by pasting the transaction hash on blockchain explorers such as Mintscan.

Check out our transaction hash article to learn more.

Yield

In financial lingo, yield is used to describe a certain amount earned on an investment over a particular period of time and is expressed in a percentage based on the amount invested, typically over a period of 1 year. Yield is a major decision-making tool used by investors before committing to an investment.


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