California has introduced a groundbreaking law, AB 2426, set to take effect in 2025, requiring retailers to inform consumers that digital games can be revoked at any time.
This initiative addresses the growing frustration among gamers over the lack of genuine ownership in digital goods. Inspired by incidents involving companies like Ubisoft and Sony, this law is a wake-up call for the gaming industry and an endorsement of Web3 technology’s potential to restore true ownership to players.
Before the internet era, gamers could purchase physical copies of their favorite games, truly owning the experience. However, with digital gaming, ownership has become conditional. Game publishers often control access to the game even after purchase, essentially making ownership a relic of the past.
Many gamers who have witnessed the not-so-gradual transition from the freedom of physical cartridge ownership to today’s unlock access approach are recognizing the lack of ownership in gaming. Publishers are free to continually sell new expansions that require ongoing purchases for players to stay competitive, and they’re free to clean out player accounts for violations of a multitude of terms and conditions as they see fit.
In early 2024, Ubisoft’s Director of Subscriptions, Philippe Tremblay spoke on the importance of getting gamers comfortable not owning their games.SOURCE
California Making Moves
It’s no surprise that California is the first state in the US to pass legislation intended to protect consumers from being misinformed when “purchasing” access to digital games.
This new warning label law acknowledges the problem but doesn’t solve it—players often still lack real control over their digital assets, even if they will be made aware of the real situation. This is where Web3 comes in.
At Gala, we’re building an ecosystem that empowers gamers to own their digital experiences and assets permanently. With blockchain technology, players regain control over many aspects of their gaming experiences, such as land, characters and items, ensuring that no central authority can revoke access without their consent.
The new California law is a reminder that the gaming industry must evolve, and Web3 is the key to making that transformation a reality.
With the power of web3, Gala Games is poised to reclaim ownership control for gamers all over the world in a way they have never known. For more details, check out this original PC Gamer article
A Virtual Private Server (VPS) is a type of hosting service that provides dedicated virtualized server space on a physical server. Essentially, a VPS mimics a dedicated server environment within a shared server.
This setup is made possible by using virtualization technology, which splits a single physical server into multiple smaller virtual servers. Each VPS has its own operating system, storage and bandwidth, which are isolated from other servers on the same physical machine.
Think of a VPS as an apartment in a high-rise building. While all the apartments share the same infrastructure (building, elevators, utilities), each unit is separate and offers privacy and control to its occupant. Similarly, a VPS offers users their own private space to run applications and websites independently, without interference from others using the same physical server.
Imagine a homeowner with a nice yard pays a landscaping crew to take care of their lawn and garden. While the homeowner is physically able to do these tasks on his own, he may not have the time needed or the skills to make his garden perfect like a professional crew. Additionally, he probably doesn’t have the tools to get the job done to professional standards and he has his own full time job to worry about. For all these reasons it becomes sensible to pay for an ongoing service that specializes in gardening.
Why are VPS Important in Decentralized Ecosystems?
Virtual Private Servers are crucial in the context of web3 and decentralized networks due to their flexibility, cost-effectiveness and scalability. They provide an ideal solution for running nodes, decentralized applications (dApps), and other blockchain-related services without the high cost associated with dedicated physical hardware.
Cost-Effectiveness: For those who want the power of a dedicated server but at a fraction of the cost, a VPS is a perfect choice. This makes it more accessible for developers and node operators to get involved in decentralized projects.
Scalability: VPS instances can be easily scaled up or down depending on the needs of the network or application. This is especially useful in blockchain environments where usage patterns can fluctuate greatly.
Flexibility: VPS users have root access to their servers, allowing for a high degree of customization. This means they can install and configure any software required to run their specific decentralized application or node.
VPS in the Gala Ecosystem
Gala Founder’s Node operators often utilize Virtual Private Servers to run multiple nodes efficiently. Running nodes on a VPS allows operators to avoid the logistical challenges and high costs of maintaining multiple physical machines. By using VPS, node operators can ensure that they have enough memory, processing power and bandwidth to support their nodes without the need for additional hardware.
The Gala Founder’s Node ecosystem is made up of dedicated community members who wish to power a portion of the network in exchange for some computing power. If a community member wishes to run 5 nodes, for example, they can either scale up their hardware and internet service to accommodate their workloads, or they can simply operate their nodes on a virtual private server, using one of many trusted VPS services available to them.
Benefits of Using VPS for Node Operations
Resource Optimization: A VPS can be customized to allocate the exact amount of CPU, RAM, and storage needed to run multiple nodes. This avoids the over- or under-utilization of resources that can occur with physical servers.
Easy Maintenance and Management: With a VPS, operators can remotely access and manage their nodes from anywhere in the world. This remote management capability simplifies the process of maintaining and upgrading nodes.
Reliability and Uptime: Reputable VPS providers offer high uptime guarantees and automated backups, ensuring that nodes remain online and functional even in the case of unexpected issues.
Security: VPS environments are typically more secure than shared hosting services because they offer isolated instances. This isolation means that security vulnerabilities in one VPS do not affect others on the same server.
Why VPS is an Ideal Solution for Decentralized Networks
In the context of decentralized networks and web3 projects, VPS instances provide a stable and reliable way to run nodes and other network services. Some of the reasons why VPS is particularly suitable for this use case include:
Decentralization Without High Costs: VPS allows individuals to participate in decentralized networks without the prohibitive costs of physical servers. This aligns well with the ethos of decentralization by lowering the entry barrier for participation.
Geographic Distribution: VPS can be deployed in data centers around the world, contributing to the geographic decentralization of the network. This ensures that the network remains robust and resistant to localized disruptions or attacks.
Flexibility for Different Roles: VPS can be used to run different types of nodes—validator nodes, storage nodes, and more—allowing operators to contribute in various ways depending on the network’s needs.
The Future of VPS in Web3
As web3 continues to grow, the demand for decentralized infrastructure solutions will only increase. Virtual Private Servers will continue to play a crucial role by providing a bridge between the scalability needs of large networks and the accessibility required by smaller operators. As projects like GalaChain and others evolve, the ability to quickly deploy, scale, and manage nodes using VPS will become a fundamental part of ensuring that decentralized networks remain performant and resilient.
Hyperledger Fabric is an open source, modular blockchain architecture developed by the Decentralized Trust. Compared to many other chains in the web3 world, Hyperledger Fabric has distinct utility because of its unique pluggable consensus, horizontal scalability and innate ability to be customized.
Check out the replay of the live stream from October 2nd with Gala’s own Koushik Gavini as he dives deep into the details of our L1 blockchain, built for entertainment but ready for anything.
Why Hyperledger Fabric
Hyperledger Fabric was designed to be the basis of enterprise-level solutions, and it’s currently used by nearly 150 businesses that leverage it as an immutable ledger in their ecosystems. It’s capable of customized permissions and has a modular architecture that allows each channel to develop how they need to for specific projects.
This is huge for the world of entertainment, where some data often must be masked for security purposes, but a public ledger is still required. Permission control lets developers control access to certain functions within their own channel, so that they can build how they want.
Finally the horizontal scalability of the multi-channel approach to blockchain allows developers to prioritize what they need. Need transactions on your channel to be lightning fast? You can do that. Real-time applications demand real-time speeds and responsiveness, and the needs of your channel are all you need to worry about.
Building Bigger and Better
Since Hyperledger Fabric was designed specifically to function at a high level for businesses, there’s tons of utility that can be built on it. Consensus, governance, a decentralized and immutable ledger – these things are all present, but they increase HLF’s utility rather than limit it.
The fact that Fabric was designed for utility, however, makes it so that developers can create unique networks using GalaChain channels that can do things no other chain out there can. Features like permissioned allowances, full oracle support and external wallet authorization make developing a competitive, next-generation project on GalaChain easy.
What’s more, developers can hop right into GalaChain. Using the powerful Fablo tool (contributed to the HLF community by the Gala team), devs can easily set up a network and be running right away. Execute chaincode in your first hour on your own channel.
Most chains you have to learn an obscure, clunky language for development. Not with GalaChain! Write chaincode and smart contracts in TypeScript – the fifth most popular programming language in the world!
Build With Us
GalaChain is getting more and more developed all the time, and the time to hop in is NOW! The innate utility of Hyperledger Fabric has helped us create something that’s simple, accessible and extremely powerful on GalaChain.
No matter what you want to build, you’ll find powerful solutions on GalaChain https://galachain.com/
The term “Web3” often pops up in discussions about the future of the internet, but what does it actually mean? To understand Web3, let’s first look at how the internet has evolved through its different stages: Web1, Web2, and now, Web3.
Web1: The Read-Only Internet
Web1 was the earliest version of the internet, spanning from the 1990s to the early 2000s. It was a time when the internet was made up of static web pages. These pages were often referred to as “read-only” because they functioned like digital brochures—informational but not interactive. You could only view content, much like flipping through a newspaper or browsing an encyclopedia. Web1 was the era of the personal home page and simple, non-dynamic websites.
Think of it as going to the library and looking at books on shelves: you could gather information, but you couldn’t check anything out or add new books to the collection. Unless you were among the programming elite, you were not likely to have created web pages in those days.
Web2: The Social and Interactive Internet
Then came Web2, the era we’re most familiar with today. Starting in the mid-2000s, Web2 introduced a new level of interactivity and participation. With the rise of social media platforms like Facebook, Twitter, and YouTube, the internet transformed into a space for sharing, commenting, and creating user-generated content.
Web2 is the “social web.” It enabled platforms and applications to gather data and provide personalized experiences. For example, you could “like” posts, share photos, comment on articles, and stream videos. Web2 also ushered in a shift where users became the product—companies collected vast amounts of data to offer targeted advertisements and generate revenue.
Throughout the Web2 era, large social media companies were becoming empires by collecting self-reported data from users of their platforms. Now they are essentially advertising platforms who distribute traffic to smaller-scale marketers and creators willing to pay for it. If you’re looking to get a product in front of the right audience, social media marketing is often the best solution. These platforms know how to effectively target various audiences, based on the information gathered over two decades of consumer use.
A good analogy for Web2 is a public square where everyone can set up booths, interact with one another and contribute to the conversation. However, the square is controlled by a few large companies that set the rules, decide who can participate, and take a cut from every transaction.
Web3: The Ownership and Decentralized Internet
Web3, sometimes referred to as the “decentralized web” or the “ownership internet,” is the next evolutionary stage. While Web1 was about reading information and Web2 was about interacting and creating content, Web3 aims to give users ownership of their content, digital assets and online identity through the use of decentralized technologies like blockchain.
Blockchain serves as the backbone of Web3, allowing for transparent, secure and decentralized record-keeping. This technology enables the creation of digital assets such as cryptocurrencies (e.g., Bitcoin, Ethereum), non-fungible tokens (NFTs) and decentralized applications (dApps). In essence, Web3 uses cryptography and decentralized systems to distribute power and control away from centralized entities, like tech giants, and back to the users.
Web3 is building a new internet world where you no longer just post a photo or upload a video, only for the hosting platforms to monetize your content. Instead, you have new options to own that content directly, decide how it’s used and even get compensated for it without the need for a middleman.
Why is Web3 Important?
True Ownership of Digital Assets
In Web2, your digital presence and content are owned and controlled by the platforms you use. If Instagram or YouTube decides to delete your account, all your content could vanish. With Web3, you own your digital identity and assets. These assets—whether they’re cryptocurrency in your wallet or digital artwork as NFTs—are stored in a decentralized manner, making it much more difficult for a single entity to take them away.
Decentralization
Web3’s decentralized nature means there is no single point of control or failure. Instead of relying on centralized servers and companies, Web3 applications operate on a network of nodes (computers) maintained by users, making them more resilient to censorship and data breaches.
Blockchain nodes are essentially points of data intersection on a decentralized network, or joints. They are user-operated checkpoints where transactions and smart contracts are validated to ensure the integrity of the blockchain, no matter how large.
With decentralization also comes unprecedented scalability. Prior to Web3, networks were limited in their growth by things like real estate, energy consumption and warehouse space for servers. In Web3, decentralized networks have the ability to grow much larger, distributing their operations all over the world.
Transparency and Trust
Blockchain technology makes every transaction transparent and verifiable. This transparency helps build trust in digital interactions and transactions, whether it’s tracking the authenticity of digital art or verifying a peer-to-peer financial transaction.
In many ways, the transparency of Web3 reduces the need for trust. While online banking is streamlined and convenient, it requires the user to trust that their money is safe. Web2 systems typically require users to exercise trust, while the transparency and security of Web3 systems reduce the amount of trust required.
Incentives and Participation
In Web3, users can be rewarded directly for their participation. For example, some decentralized social media platforms reward users with tokens for creating content, commenting or participating in discussions. This is a stark contrast to Web2, where the platforms, not the users, profit from the content and activity.
This aspect of Web3 is what inspired Gala’s founders to first create a world of Web3 gaming that allowed players to own and trade their in-game items. Instead of committing to pay a large portion to the social media platforms in control of Web2 marketing, Gala is on a mission to return that control and freedom to its users. It is through this incentivization first approach that Gala Games was able to award over $1 Billion in value to player-owners in its gaming ecosystem in just the first 2 years of operation.
Today, Gala’s core brands of Games, Music and Film (along with the numerous in-development third-party GalaChain projects) present a variety of ways to collect digital assets and get rewards for participation in the ecosystem.
Web3 applications are often designed to be interoperable and composable, meaning that different applications and platforms can work together seamlessly. This fosters innovation and enables developers to build on top of existing projects without needing permission or integration deals.
Gala invites external developers and innovators to build on its layer-1 blockchain, GalaChain, using the GalaChain SDK and the Gala Creators toolkit.
Real-World Use Cases of Web3
Decentralized Finance (DeFi): Financial services built on blockchain that operate without a central authority, enabling peer-to-peer lending, borrowing, and trading.
NFT Marketplaces: Platforms like OpenSea and Rarible allow artists to mint, sell, and auction digital art as NFTs, providing new revenue streams for creators.
Gaming and Virtual Worlds: Games like Common Ground World and virtual worlds like Decentraland let players truly own in-game items, characters and virtual real estate, which they can sell or trade with others on peer-to-peer marketplaces.
Decentralized Social Networks: Platforms like Mastodon and Lens Protocol provide social networking experiences without the control or data surveillance typical of Web2 social media platforms. GalaChain even has its own gamified social media network: Rep.run.
Challenges and Future Outlook
Web3 is still in its early stages and faces several challenges:
User Experience: The technology is complex, and using Web3 applications often requires a steep learning curve, particularly around setting up digital wallets and managing private keys.
Scalability: Current blockchain networks, like Ethereum, struggle with high transaction fees and slow processing times during peak usage.
Regulatory Uncertainty: Governments and regulatory bodies are still figuring out how to approach decentralized technologies, which creates uncertainty for developers and users.
Despite these hurdles, Web3 holds immense potential to reshape the digital landscape. As technology matures and more people become aware of its benefits, we could see a new era of the internet where users have true ownership, privacy, and control over their online experiences.
Web3 represents a paradigm shift in how we interact with the internet. It’s not just about making existing systems more efficient but about fundamentally rethinking how we create, interact with, and own content and assets online. While the journey toward widespread adoption is still ongoing, the principles and technologies behind Web3 lay the groundwork for a more decentralized, transparent, and user-empowered internet.
Yield farming is a popular concept in decentralized finance (DeFi) that allows users to get rewards by lending or staking cryptocurrency on a blockchain-based platform. The idea is straightforward: you deposit your digital assets into a decentralized application (DApp) or liquidity pool, and in return, the platform rewards you with additional tokens. It’s similar to the way interest can be earned on the money held in a savings account.
Yield farming helps decentralized platforms by providing liquidity, which is essential for these platforms to function smoothly. The less liquid a digital asset is, the more difficult it becomes to buy or sell that asset, resulting in the potential for extreme price volatility. In exchange for contributing to an asset’s liquidity, users receive rewards, which vary depending on the platform and the type of assets staked.
How Does Yield Farming Work?
Let’s compare yield farming to a community garden. Imagine you’re growing plants in a shared garden where everyone contributes seeds (digital assets). As the plants grow, the garden yields fruits (rewards), which are shared among all contributors based on how much they’ve contributed.
Yield farming works in a similar way: Users provide liquidity to decentralized platforms, and the platform distributes rewards proportionate to each user’s contribution.
Here’s how it typically works step by step for the user:
Provide Liquidity: You deposit your cryptocurrency into a liquidity pool on a DeFi platform. These liquidity pools are essential for decentralized exchanges (DEXs) and other financial services to operate without a traditional intermediary.
Collect Rewards: In return for providing liquidity, you earn rewards, often in the form of the platform’s native token or other assets. The more liquidity you provide, the more rewards you can earn. These rewards are typically accumulated over time from the transactional fees charged to those who trade on the platform.
Stake or Claim: Some platforms allow users to stake their reward tokens in additional liquidity pools to compound their rewards, while others simply let you claim the rewards directly.
What is a Liquidity Pool?
A liquidity pool is a collection of funds locked into a smart contract. These funds are used to facilitate trading on decentralized exchanges or to support lending and borrowing activities on DeFi platforms. By contributing to a liquidity pool, you help ensure there is enough liquidity for users to trade or borrow assets, making the entire platform more efficient.
A basic liquidity pool involves an exchange pairing between 2 different tokens. When initially providing liquidity, the provider would stake equal value parts of each token, ensuring that they have added liquidity to that pairing equal to the value they have contributed.
Why is Yield Farming Important in DeFi?
Yield farming plays a crucial role in the decentralized finance ecosystem. It ensures that there is enough liquidity for decentralized exchanges and lending platforms to function smoothly without needing centralized control. Large privately owned exchanges provide the liquidity themselves, keeping enough value to back the trade activity for all their exchange pairings.
The decentralized approach empowers users by enabling them to get rewarded while contribute to the ecosystem, without relying on traditional financial intermediaries, such as banks.
Here are some key reasons why yield farming is important:
Liquidity Provision: Without yield farmers, DeFi platforms would struggle to have enough liquidity for trades, loans and other financial operations. Yield farmers ensure there’s always enough liquidity in the system.
Reward Incentives: Yield farming provides an attractive way for users to get rewards by simply holding and staking their digital assets, often far more than traditional savings accounts.
Decentralized Control and Anonymity: By participating in yield farming, users help maintain a decentralized system, keeping control in the hands of the community rather than centralized entities.
Risks of Yield Farming
While yield farming can offer high rewards, it also comes with certain risks. Here are some of the main concerns to be aware of:
Impermanent Loss: When you provide liquidity to a pool, you might experience impermanent loss. This happens when the price of the assets you’ve deposited changes compared to when you added them. If the price moves significantly, your potential rewards could be reduced. There is no guarantee that the value of the liquidity you have provided will hold steady.
Smart Contract Vulnerabilities: Yield farming relies on smart contracts, which are pieces of code that automatically execute transactions. If there’s a bug or vulnerability in the smart contract, it could result in loss of funds.
Platform Risk: Not all DeFi platforms are created equal. Some may have weaker security measures or be more prone to hacks and exploits. It’s important to research the platform you’re using before depositing assets.
Popular Platforms for Yield Farming
There are several popular DeFi platforms where users can participate in yield farming. Here are a few:
Uniswap: One of the largest decentralized exchanges where users can provide liquidity to earn rewards.
Aave: A DeFi lending platform where users can deposit assets into liquidity pools and earn rewards through lending.
Compound: Another popular lending platform where users can earn rewards by lending out their assets.
Each of these platforms operates slightly differently, but they all provide opportunities for users to stake or lend their assets and earn rewards.
Yield Farming in Action: An Example
Let’s break down a simple example of yield farming in action:
You decide to stake some of your digital assets (for instance, Ethereum) on a platform like Uniswap.
You deposit these assets into a liquidity pool for a specific trading pair, such as ETH/USDC (Ethereum and USD Coin).
As people trade between ETH and USDC on the platform, they pay small fees, which are distributed proportionally to all the liquidity providers in the pool.
In addition to these fees, you may also earn rewards in the form of the platform’s native tokens.
Over time, the rewards accumulate, and you can choose to reinvest them or withdraw them.
Yield farming is often a valid option for long term holders of well established cryptocurrencies who would like to generate passive rewards from their holdings. However, it is always important to do extensive research before making the decision to provide liquidity or get into yield farming. Not all dApps and platforms are created equally.
This article is meant for educational purposes only and should not be considered financial advice.
Liquidity is a concept that pops up often in the world of finance, and it’s just as important in the Web3 space, especially with the rise of decentralized finance (DeFi). In simple terms, liquidity refers to how easily you can buy or sell an asset like a cryptocurrency, without drastically changing its price.
To put it in everyday language, imagine you’re at a market selling apples. If there are plenty of buyers ready to purchase your apples at the current price, then your apples are more “liquid.” You can sell them quickly, and you don’t have to drop the price to attract a buyer. However, if there are only a few buyers, you might have to lower the price or wait a while to sell your apples. In that case, your apples are less liquid.
Sellers and buyers are both necessary for any market to work effectively; the concentration of each of them influences the market in many different ways.
In Web3, liquidity applies to digital assets like cryptocurrencies and tokens. High liquidity means people can trade their tokens quickly, while low liquidity means it’s harder to find someone to trade with, and you may need to wait longer or accept a worse deal.
Why is Liquidity Important in Web3?
Liquidity plays a big role in how smoothly decentralized markets and applications function. Here’s why liquidity is crucial in the Web3 world:
Efficient Trading: High liquidity means you can easily trade your tokens without slippage (the difference between the expected price of a trade and the actual price). If liquidity is low, prices can swing drastically after each trade, creating an inconsistent and unpredictable market.
Fair Prices: In liquid markets, prices tend to be more stable and reflective of real value. With low liquidity, even small trades can cause big price movements, making it harder to predict what you’ll pay or receive for a token. This is why with tens of thousands of altcoins in existence, the vast majority of them have proven so volatile from one day to the next.
User Experience: Web3 applications like decentralized exchanges (DEXs) need liquidity to offer fast and reliable services. If liquidity is low, users may experience delays or unfavorable prices when trading tokens, which can discourage participation in that exchange. For a decentralized exchange like Uniswap to compete with a centralized (privately owned) exchange like Coinbase, liquidity is used to create equally convenient trading activities for users.
How Does Liquidity Work in Web3?
In Web3, liquidity typically comes from two main sources:
Liquidity Providers (LPs): In decentralized finance (DeFi), liquidity often comes from regular users who deposit their crypto into a liquidity pool. These users are called liquidity providers. By contributing their tokens to the pool, they help create liquidity, which allows others to trade. In return, liquidity providers earn rewards like a share of the trading fees. Typically, a liquidity provider contributes to a liquidity pool by providing an equal-value amount of both tokens involved in that exchange pairing.
Liquidity Pools: A liquidity pool is a smart contract that holds funds to facilitate trading between different cryptocurrencies on a decentralized exchange. For example, if someone wants to trade Ether (ETH) for a stablecoin like USDC, the liquidity pool allows them to do so without needing a direct buyer or seller. The more funds in the pool, the easier and quicker trades can be made.
Think of liquidity pools like communal pots of money that people can use to trade tokens with each other. The bigger the pot (more liquidity), the easier it is for everyone to trade, and with larger amounts at a time.
Examples of Liquidity in Web3
Uniswap and Liquidity Pools: One of the most popular platforms in DeFi, Uniswap, allows users to swap between different tokens by tapping into liquidity pools. Users provide liquidity by depositing pairs of tokens (like ETH and USDC) into the pool. In return, they receive a percentage of the fees generated when other users make trades.
Stablecoins as Liquid Assets: Stablecoins like USDC or DAI are often considered highly liquid because they are widely used and can be easily exchanged for other tokens. Their prices are stable, which makes them ideal for providing liquidity in many DeFi applications.
NFT Liquidity: Liquidity doesn’t just apply to cryptocurrencies—it also applies to NFTs (non-fungible tokens). Some platforms are experimenting with ways to create more liquidity for NFTs by letting users fractionalize them, meaning they split the NFT into smaller pieces that can be traded more easily.
Liquidity Mining and Yield Farming
In the Web3 world, liquidity mining or yield farming is a way that people are incentivized to provide liquidity to a decentralized platform. Essentially, liquidity providers earn rewards, usually in the form of extra tokens, for depositing their assets into a liquidity pool.
For example, if you deposit your crypto into a liquidity pool on Uniswap, you may receive Uniswap’s governance token ($UNI) as a reward. This is a reward incentive, a way to encourage more liquidity, keeping decentralized exchanges running smoothly.
Why Liquidity Matters for Web3 Projects
For Web3 projects to thrive, they need liquidity. Without it, users would struggle to trade tokens or interact with decentralized applications (dApps). Here are a few key reasons why liquidity is critical:
Smooth Functioning of DEXs (Decentralized Exchanges): DEXs rely heavily on liquidity pools. Without enough liquidity, users can’t easily swap tokens, which disrupts the whole system.
Trust and Adoption: High liquidity signals trust in a project. If a project has deep liquidity, more users are likely to join, trade, and use the platform. On the other hand, low liquidity can deter users because they may worry about the stability and usability of the platform.
Price Stability: More liquidity means token prices are more stable and less likely to be affected by large trades. This creates a healthier market and attracts both casual and serious investors.
Common Liquidity Terms in Web3
Liquidity Provider (LP): A user who contributes tokens to a liquidity pool to facilitate trading on a decentralized exchange.
Liquidity Pool: A smart contract that holds tokens to enable decentralized trading between two or more cryptocurrencies.
Slippage: The difference between the expected price of a trade and the actual price. High slippage happens in low-liquidity environments.
Liquidity Mining/Yield Farming: The process of earning rewards for providing liquidity to a platform or decentralized exchange.
Impermanent Loss: A potential risk for liquidity providers. This occurs when the price of the deposited tokens changes compared to when they were deposited, leading to lower value when they’re withdrawn.
The Lifeblood of Web3
Liquidity is crucial to making decentralized platforms work efficiently. Whether it’s enabling quick and cheap token swaps, stabilizing prices or collecting rewards through liquidity mining, liquidity plays a huge role in Web3 ecosystems.
For those new to the Web3 world, understanding liquidity can help you make better decisions when participating in DeFi platforms, trading tokens or even providing liquidity yourself for passive rewards.
