Liquidity Pools explained — what, why, and how…

Liquidity Pools explained   what, why, and how…

Liquidity pools are an innovative solution within DeFi to create the mechanics of a market maker in a decentralised fashion. Although often met with confusion, they are simply clusters of tokens with pre-determined weights.

A token’s weight is how much its value accounts for the total value within the pool. Liquidity Pools are an exciting and equalising tool, which represent the true nature of the Decentralised Finance (DeFi) and Web3.0 movement.

This blog will offer some insight into Liquidity Pools.

It will first take you through what they are and why they exist, followed by how they work to create an environment, which incentivises contribution. It will then explore some suggestions as to why you may be interested in engaging with them and finally how to get involved.

Liquidity Pools explained   what, why, and how…

What is a liquidity pool?

In a previous blog post we outlined where liquidity pools derived from which we’d recommend you read here first if you haven’t already.

At a high level, liquidity pools are a method of increasing liquidity, similar to the way traditional exchanges use market makers.

Yet, where traditional finance requires expensive and centralised intermediaries, which have a level of power to manipulate prices, liquidity pools offer a decentralised alternative through automated market makers, which offer a unique opportunity for anybody to contribute to a pool which behaves similar to a market maker. The pool is essentially a shared market maker, the gains from which are distributed between those that contribute.

This both embodies the ideals of blockchain and decentralisation generally and offers users and companies unique opportunities to trade more efficiently and cheaply whilst having total trust in the system makes it so. Before they arrived on the scene, liquidity, i.e. how easy it is for one asset to be converted into another, often fiat currency without affecting its market price, was difficult for DEXs.

How do they work?

In order for Liquidity Pools to function in the way that leads to the outcomes laid out above, i.e. greater decentralisation of projects and increasing liquidity, there are a number of key aspects worth understanding:

  • token weighting;
  • pricing;
  • market-making functions;
  • LP tokens.

(much of the following is taken from the official documentation from Osmosis Labs).

Token weight

Liquidity pools are simply clusters of tokens with pre-determined weights. A token’s weight is how much its value accounts for the total value within the pool.

For example, Uniswap pools involve two tokens with 50–50 weights. The total value of Asset A must remain equal to the total value of Asset B. Other token weights are possible, such as 90–10.


With fixed predetermined token weights, it is possible for AMMs to achieve deterministic pricing, i.e. outcomes are precisely determined through known relationships among states and events, without any room for random variation. As a result, tokens in LPs maintain their value relative to one another, even as the number of tokens within the pool changes. Prices adjust so that the relative value between tokens remains equal.

For example, in a pool with 50–50 weights between Asset A and Asset B, a large buy of Asset A results in fewer Asset A tokens in the pool. There are now more Asset B tokens in the pool than before. The price of Asset A increases so that the remaining Asset A tokens remain equal in value to the total number of Asset B tokens in the pool.

Consequently, the cost of each trade is based on how much it disrupts the ratio of assets within the pool. Traders prefer deep liquid pools because each order tends to involve only a small percentage of assets within the pool. In small pools, a single order can cause dramatic price swings; it is much more difficult to purchase say 1,000 ATOMs from a liquidity pool with 2,000 ATOMs than a pool with 2,000,000 ATOMs.

Market-Making Functions

AMMs leverage a formula that decides how assets will be priced in the pool. Many AMMs utilise the Constant Product Market Maker model (x * y = k). This design requires that the total amount of liquidity (k) within the pool remains constant. Liquidity equals the total value of Asset A (x) multiplied by the value of Asset B (y).

Other market-making functions also exist, you can find out more about these here.

Liquidity Pool Tokens (LP tokens)

When a user deposits assets into a Liquidity Pool, they receive LP tokens. These represent their share of the total pool.

For example, if Pool #1 is the OSMO<>ATOM pool, users can deposit OSMO and ATOM tokens into the pool and receive back Pool1 share tokens. These tokens do not correspond to an exact quantity of tokens, but rather the proportional ownership of the pool. When users remove their liquidity from the pool, they get back the percentage of liquidity that their LP tokens represent.

Source: Osmosis Labs docs

Why should I care?

The collection of the mechanisms above is used to ensure liquidity pools are able to maintain a stable price and ultimately work as a traditional market maker would do.

However, in order to achieve their ultimate goals, encouraging token holders to provide liquidity to pools is required.

The aspects in place to do so is what is known as ‘liquidity mining’ or ‘yield farming’. Contributing to a pool makes an individual a liquidity provider (LPs).

Liquidity mining

Liquidity providers earn through fees and special pool rewards. LP rewards come from swaps that occur in the pool and are distributed among the LPs in proportion to their shares of the pool’s total liquidity. So where do the rewards themselves come from?

Liquidity rewards are derived from the parameters laid out in the genesis of the AMM, in the case of the Cosmos Ecosystem this is Osmosis. For Osmosis, each day, 45% of released tokens go towards liquidity mining incentives.

When a liquidity provider bonds their tokens they become eligible for the OSMO rewards. On top of this, the Osmosis community decides on the allocation of rewards to a specific bonded liquidity gauge through a governance vote.

Bonded Liquidity Gauges

Bonded Liquidity Gauges are mechanisms for distributing liquidity incentives to LP tokens that have been bonded for a minimum amount of time. For instance, a Pool 1 LP share, 1-week gauge would distribute rewards to users who have bonded Pool1 LP tokens for one week or longer. The amount that each user receives is in proportion to the number of their bonded tokens.

The rewards earned from liquidity mining are not subject to unbonding. Rewards are liquid and transferable immediately. Only the principal bonded shares are subject to the unbonding period.

However, as with any opportunity for gain, there is of course some degree of risk; i.e. an individual could be better off holding the tokens rather than supplying them.

This outcome is called impermanent loss and essentially describes the difference in net worth between HODLing and LPing (more here). Liquidity mining mentioned above helps to offset impermanent loss for LPs. There are also other initiatives within the Osmosis ecosystem and beyond exploring other mechanisms to reduce impairment loss.

How do I get involved in liquidity pools

So you’re sold on their potential and now you want to get involved?

Liquidity pools can be access across DeFi, whether in the Ethereum ecosystem using UniSwap and SushiSwap, or closer to home for cheqd in Cosmos, through Osmosis and Emeris

For the purpose of this article we’ll share how to get involved using Osmosis.

First, head to Osmosis and click enter the lab. Once you’ve agreed to terms and you’re ‘in the lab’ you’ll see some trading pairs and a button to connect your wallet (bottom left of the dashboard).

enter the osmosis lab cheqd blog setting up

You can then select Keplr wallet which will automatically connect to your Keplr wallet if you’ve already set it up as a Browser extension.

enter the osmosis lab cheqd blog wallet

Next, you’ll need to deposit the assets you would like to contribute towards a Liquidity Pool. You can see the available Liquidity Pools under ‘Pools’. For example, if you would like to contribute to the Pool #602 : CHEQ / OSMO, you will need to deposit both of these tokens.

To do so, select ‘Assets’ and find the tokens you would like to deposit to contribute to the pool.

Note: if you already hold OSMO in your Keplr wallet you won’t be required to deposit.

Once you have deposited enough tokens for both sides of the pools (i.e. ensure that if the pool is setup as 50:50, you must have the equivalent amount is USD on both sides)

Next, find your pool and select ‘Add/ Remove Liquidity’.

Here you’ll be able to add tokens on both sides of the pool.

On selecting ‘Add Liquidity’ you’ll then be directed back to Keplr to approve the transaction (a small fee is required).

Once you have added liquidity to the pool, you’ll receive your LP tokens (a token representing your share of the total pool). Now it’s time to start ‘Liquidity Mining’.

You’ll now be able to see your total Available LP tokens. Below this you’ll see an option to ‘Start Earning’.

Once here you’ll see a few options for your unbonding period (i.e. the amount of days it takes to remove your tokens from the pool if you decide to withdraw). The longer you choose to bond your tokens, the higher the rewards you’ll be eligible to earn.

Next select the amount of your LP tokens you’d like to contribute to the pool and finally hit ‘Bond’ (this will kick off another approval through a Keplr pop-up).

You’ll now see your total bonded tokens. Each day rewards will then be distributed. When you decide to withdraw from the pool you’ll simply need to select ‘Remove Liquidity’ and select the amount you’d like to withdraw.


Overall, liquidity pools offer a new avenue for projects to gain more liquidity, and believers of these to show their support. Where for many years engaging in and benefiting from such financial systems was reserved solely for the wealthiest individuals and large organisations, now anyone can gain access and start contributing to their favourite projects, voting on their future direction and earning from the part they play.

Note: for the purpose of engaging with cheqd through its token the information above is not required, however, we strongly believe in the value of educating and sharing what we’re learning with our community to help you better understand DeFi and support us in raising the awareness of the shift to Web 3.0.

You’ve seen our Product Vision for 2022… now we want to hear from you!

Product Vision for 2022 Part 2

Co-authored by Ross Power and Ankur Banerjee

Last week we shared our Product Vision for 2022 where we broke down our product development for the year into three focus areas:

  1. Identity: Core identity functionality for our partners to build compelling self-sovereign identity use-cases on top of the cheqd network.
  2. Web 3.0 Core: Core Web 3.0 functionality adds deeper integration for our network and token into the Cosmos and other blockchain ecosystems.
  3. Web 3.0 Exploratory: Emerging Web 3.0 use-cases such as decentralised exchanges (DEX) ecosystems; decentralised autonomous organisations (DAOs); identity for non-fungible tokens (NFTs), and in general, DeFi applications.

If you missed it you can see it here.

cheqd’s product vision-we want to hear from you

Now we want to hear from you… launching cheqd’s 2022 Product Roadmap Survey

We strongly believe in the importance of our Product Roadmap being informed by the ultimate end users of the cheqd network; whether this is our immediate SSI Partners, their customers, or even the long-term end-users of SSI and the cheqd network.

As such, the purpose of this survey is to gain a greater understanding of the hopes, needs and wants of our community, developers, and partners as we build our network for incentivised decentralised digital identity.

Once we have gathered responses we’ll work through our backlog using our existing understanding and assumptions, informed by the feedback we receive, to prioritise our next steps using the framework below (at a high level).

Objectives of the Product Roadmap Survey

  1. Network Utility: To gain a deeper understanding of our SSI vendors needs, which will subsequently inform how we develop the network utility and token utility. By understanding our SSI vendors’ customer needs we’ll be able to more effectively assimilate ideas to find common needs that meet the majority.
  2. Interoperability: To align the network and token utility, to the best of our ability, with open standards to maximise; Technical interoperability, Semantic interoperability, Economic interoperability, Legal interoperability. On this point, we’re excited to share that cheqd is now an official ToIP supported Public Utility!
  3. Vendors customer research: To help inform and test our assumptions relating to the more strategically significant milestones in the SSI space in terms of the actual end customers/end users.
  4. Partnership Commitment: To fulfil our intentions of creating a truly collaborative and engaged partnership ecosystem that can effectively provide direction to a network that they will ultimately be the beneficiaries of, and channel to end-users.

The Survey

If you’d like to take part you can complete the survey here. It should take 5–7 minutes to complete and will close on Friday 11th February 12:00 UTC.

As a thank you for your contributions, 20 randomly-chosen respondents will receive a surprise gift from cheqd 🤫. To allow us to get in touch to give you the surprise, you can optionally opt-in at the end of the survey to be considered for the random draw. Please be sure to let us know any additional feedback you have in the free-text questions of the survey if you feel we’ve missed anything or have anything you’d like to add. We look forward to sharing the results with you in the near future!

Tell us what you think!

In addition to the Product Roadmap Survey, we welcome engagement and feedback across a range of different forums, such as our Community Slack and Governance Framework discussion board (best for extended, in-depth discussions), or right here on Medium.

We, at cheqd, help companies leverage SSI. cheqd’s network is built on a blockchain with a dedicated token for payment, which enables new business models for verifiers, holders and issuers. In these business models, verifiable credentials are exchanged in a trusted, reusable, safer, and cheaper way — alongside a customisable fee. Find out more about cheqd’s solutions for self-sovereign identity (SSI).

We’re launching our network very soon! Here’s how you can get ready…

We’re launching our network very soon! Here’s how you can get ready

Update: Since this blog has been published, we’ve successfully launched cheqd mainnet and updated our tokenomics. However, if you’re looking to hodl $CHEQ and participate in our governance votes, all the information below is still relevant.


Disclaimer: All information provided is intended to help users get set up on cheqd. However, we do not expressly recommend or mandate a certain approach. All actions taken are your personal responsibility. Much of the content of this article was created using the Keplr FAQKeplrs account creation blog and wallet setup guide, which you should cross-check for further information.

In the coming weeks, we’ll be launching our network. This article will provide you with a few steps on how you can set up your Cosmos wallet.

As the cheqd network has been built on Cosmos, we’ll be using wallets that integrate directly with the Cosmos ecosystem and our initial Decentralised Exchanges (DEX) — we’ll share more information on this at a later time.

Here’s where Keplr comes in…

What is Keplr?

Keplr is a Cosmos wallet that has been praised for putting the user at the heart of the experience. As the first and leading Inter-Blockchain Communication (IBC) enabled wallet for the Cosmos ecosystem, Keplr offers users the ability to stake their tokens, use blockchain apps and manage multiple tokens in one wallet.

Slow down… IBC? IBC, or Inter-Blockchain Communication Protocol, is an interoperability protocol for relaying messages between different Cosmos chains, launched earlier this year. Essentially it allows users to complete token transfers between various chains on the Cosmos Hub. As Keplr is IBC enabled, users can execute transfers of tokens within the wallet or through connected DEXs (we’ll come to this in the next piece).

Now back to Keplr.

For those a little new to crypto, Keplr is a software wallet, meaning it can be installed on a mobile or as a browser extension in chrome or safari, for example. Although less secure than hardware wallets (like a Ledger), paper wallets, or backups, software wallets offer a much more convenient experience for the user as they allow users to store their mnemonic locally on a computer.

“What is a mnemonic?” I hear you say…

Good question.

A mnemonic (said with a silent m — “nuh-mon-ic” — if you really want to impress your crypto friends), mnemonic phrase, mnemonic seed, or simply seed phrase is a string of 12–24 words that represent the private key to your wallet. When used in the correct sequence, they give users access to their cryptocurrencies stored within a wallet in the same way a private key does. As private keys generally are made up of a combination of letters and numbers, which are difficult to decipher, mnemonics are used to make it possible to understand the private key.

mnemonic cheqd blog

We all have childhood memories of creating easy-to-remember phrases to recall things like the planets in our Solar System before crypto was ever invented and when Pluto still had a seat at the Solar System table.

pluto cheqd blog

The fancy word ‘mnemonic’ is exactly this. Literally, it refers to a memory aid like a rhyme, abbreviation or song that helps to remember something else. Ironically, the word itself is much less easy to remember.

In the context of digital assets, mnemonics are used to protect your wallet in the event that the computer that it was running on died, was lost or stolen. The mnemonic, usually 12 words, can be typed in the sequence it was created to restore the wallet and your access on a new device. In this case, you will not need to store a separate version of your mnemonic as the Keplr application itself manages this for you.

We’re launching our network very soon! cheqd blog keplr wallet 2

Setting up a Keplr Wallet on PC/Mac

  1. Go to the Keplr website to find the relevant extension for your browser. If you’re using Chrome, which we’d recommend, click here → browser extension
  2. Once you’ve installed Keplr wallet, you’ll see four options to set up an account:

1) Google Single Sign On (SSO) / One-Click Login,

2) Create a new account by setting up a new seed/mnemonic phrase,

3) Import an existing account, or

4) Import your Ledger account

In this guide, we’ll assume you have not used Keplr before and, therefore, will take you through options 1 and 2

keplr wallet sign up cheqd blog

Note: The Keplr team will never reach out and ask you to validate your wallet or type your mnemonics. Be careful of scammers.

Option 1: Google SSO / One-Click Login

For the highest level of security when using Keplr, we’d recommend this option. With Google SSO, you can enable Two Factor Authentication (TFA), which enhances your security through adding a second factor. For example, you can use SMS (NOT recommended), a software authenticator, or a hardware key like Yubikey or Google Titan Key.

  1. Select Sign In with Google
  2. Enter an account name (this can be changed later) and a password
keplr wallet sign up with google cheqd blog
  1. Next, you’ll be prompted to sign in to your Google account with your email or phone (and later password). Click [Next].
  2. And that’s it! You now have a Keplr wallet.
keplr wallet se up cheqd blog
keplr wallet dashboard cheqd blog

Note: By using Google SSO, you will not have to store your mnemonic as your access is managed by Google. With the extension, you can access your private key at any time; however, you will not see a mnemonic. To do this, click on your profile icon and select the account, and use the three dots to select the information you want to see (you’ll need your password to do this).

Option 2: Create an Account via Secret Seed/mnemonic Phrase

  1. By clicking on the Keplr browser icon for the first time will take you to the accounts setup page. Choose option [Create new account].
keplr wallet create an account cheqd blog

2. The next page shows you your secret seed/mnemonic phrase.* You can select a 12 or 24-word phrase. Save this phrase in a secure place but also do not lose it. (You’ll need to input this phrase into the following page.)

backup mnemonic keplr wallet cheqd blog

3. Next, enter a name for your account and password (you can change these later). Click on [Next].

keplr wallet save password cheqd blog

4. To confirm the creation of this new account, you’ll need to click on the words in the right order in which they appear in your seed/mnemonic phrase and press [Register].

keplr wallet confirm registration cheqd blog

5. Congratulations! 🎉 You are now the owner of a Keplr wallet account and are ready to explore the interchain.

Copying a wallet address from Keplr

To receive tokens into your Cosmos wallet, whether you are depositing yourself from another wallet or you are required to do so to receive tokens from another party, you will need to provide a wallet address.

To do this, enter your Keplr app through the Browser extension by clicking on the small ‘K’ icon. If this does not come up, click the puzzle icon and find the Keplr app here (you can pin this to your browser to access your wallet more easily in the future)

puzzle icon keplr wallet cheqd blog

Once you’re in, you’ll automatically see the Cosmos wallet, which holds ATOM tokens.

cosmos wallet cheqd blog

To provide a wallet address for Cosmos, please make sure you are within this wallet. Below your name, you will see an address beginning with ‘cosmos1 followed by numbers and letters. To copy this, CLICK on the wallet address itself, and you will see an alert pop-up stating, ‘Address copied!’

cosmos wallet cheqd blog 2

This will now be the most recent information you have copied. When you are ready to paste — either right-click your mouse and select paste OR use ‘ctr-v’.

As a final step, always ensure you have double-checked the address by cross-checking the final four digits of the address you have pasted against your address in your wallet.

Note: this method works for Cosmos, cheqd and all other tokens building on Cosmos, which appear in the dropdown menu. If you’ve been asked to provide a Cosmos wallet address by the cheqd team, you’ll be guided on how to view this in your Keplr wallet at a later date (this is pending CHEQ being listed on Keplr).

Setting up multiple accounts on Keplr

In some cases, you may be required to set up multiple accounts on Keplr. You can do this within the Keplr extension you have set up in the previous steps:

  1. Select the Keplr extension from your browser
  2. Select your profile icon on the top right of the pop-up
  3. Select ‘Add account’. This will take you to the start of the process above. Please follow the same instructions to set up your additional account

Setting up a Keplr Wallet on your smartphone.

Although we’d highly recommend following the instructions above (i.e. setting up your wallet as a browser extension) as this will provide a much more seamless experience when connecting to Decentralised Exchanges, you can also log in using your phone.

If you have done the above already, once you have downloaded the Keplr app, when logging in, you will be required to provide either the mnemonic seed OR you can log in through Google SSO.

If it is your first time and you would prefer to use your phone, you can follow the steps above as a guide and set up your wallet directly through the app (always remember to store your mnemonic safely!)

Adding the cheqd network to your Keplr wallet

To see $CHEQ in your Keplr wallet, you’ll need to follow the steps below, which enable Keplr to auto-discover the cheqd network.

  1. Sign in to your Keplr wallet on your browser (do not use the mobile app)
  2. Go to our dashboard at
  3. Click “Connect” in the top right corner to link your Keplr to the dashboard
  4. You will see a pop-up that asks you to approve adding cheqd-mainnet-1 to your Keplr wallet.
  5. Click “Approve.
  6. On the Keplr extension in your browser, click the drop-down menu at the top. Scroll down to below “ — — Beta support — — ” where you will find the cheqd wallet
  7. You will now be able to see your balance in $CHEQ.
  8. See the link for further instructions on sending $CHEQ, staking and other information, with helpful screenshots.

A reminder of best practices

  • Always save your mnemonic or private key.
  • Don’t use ctrl-c or copy when copying. Instead, use the built-in function within wallets to copy your keys.
  • Store multiple copies of your mnemonic in secure locations to which you won’t lose access!
  • Never share your private keys, mnemonic seed or password with anyone.
  • Never screenshot your mnemonic seed, as you may forget to delete these.

Get ready...

If you haven’t already joined our Telegram group, follow us on Twitter and sign up for a surprise.


Update: In the meantime, take a look at the cheqd journey so far to get up to speed on where we are, where we are headed next, and how you can get involved. Our next stop is payment rails.

Setting yourself up for Gravity DEX with Emeris: What you need to know

Setting yourself up for Gravity DEX with Emeris What you need to know

Disclaimer: All information provided is intended to help users get set up on cheqd. However, we do not expressly recommend or mandate a certain approach. All actions taken are your personal responsibility.

In the first blog of this launch preparation series, we shared instructions on how to set up your Keplr wallet, which you’ll need when the cheqd network is launched. In this blog, we’ll provide background and insights into Gravity DEX, and how to interact with this through Emeris.

Background to cryptocurrency exchanges

If you’re new to the crypto space, you’ve likely come across a vast array of ‘exchanges’ and have perhaps found yourself a little confused. Before jumping into Decentralised Exchanges, it’s worth a reminder on what cryptocurrency exchanges are.

Cryptocurrency exchanges are platforms that initiate the trading of digital coins, much in the same way that the stock market or equity market facilitates the exchange of stocks or shares, which represent ownership claims on businesses.

Types of exchanges

Cryptocurrency exchanges are generally broken into two types; Centralised Exchanges (CEXs) and Decentralised Exchanges (DEXs). Centralised Exchanges function as trusted intermediaries in trades, often acting as custodians by storing, monitoring transactions and securing assets on your behalf.

Leading exchanges, such as Coinbase, Binance, Bittrex, generally provide the full experience for buying and selling cryptocurrencies, from funding your account with a debit or credit card, right through to trading a wide variety of tokens. As they offer you the opportunity to store your funds within their platform, they hold your private keys and therefore you don’t need your own wallet or have to take precautions to protect your mnemonics. The trade-off for this simpler user experience however is that you are trusting the exchange with your holdings.

Decentralised Exchanges

The alternative to CEXs, Decentralised Exchanges, are more in line with the overall decentralised movement, as the name suggests. These operate without any interference or need for a trusted third party, allowing peer-to-peer (P2P) transactions.

Decentralised Exchanges you may have heard of include Uniswap, PancakeSwap, Tokenlon and Venus. As they work through decentralised mechanisms they offer a number of user benefits when compared to CEXs.

The benefits include major improvements in privacy since they are anonymous (whereas CEXs will require KYC checks), reduced costs to the user as they work on principles of automation and self-regulation, minimised risk of hacking, and overall much great control over your wallets and funds.

For this, and other reasons, we have chosen to launch the CHEQ token, which will power the cheqd network, initially on Gravity DEX.

What is Gravity DEX

Gravity DEX, the Decentralised Exchange built on the Cosmos blockchain, enables permissionless swaps and pools of digital assets between any two blockchains. This means that users can exchange tokens peer-to-peer with ease. It also has hugely reduced costs of trading when compared to DEXs on Ethereum for example. Prior to Gravity DEX, it was difficult to purchase many smaller tokens in the Cosmos ecosystem, other than BNB, ATOM or Luna.

Getting Set Up with Emeris

efore getting set up, ensure you have followed the instructions for setting up a Keplr wallet in the previous blog. Having a Keplr wallet already created and added to your browser is a prerequisite for the next steps. If you’ve already done this then read on

Head to the Emeris app and select ‘Launch app’. You can then connect your Keplr wallet seamlessly by following the on-screen instructions.

Emeris offers users the ability to interact with Gravity DEX through a noncustodial dashboard. Developed by the Tendermint team, Emeris essentially acts as an attractive and interactive frontend to Gravity DEX. Although initially Cosmos centric it will expand far beyond the Cosmos network and eventually be a one-stop portal for all crypto apps — the interface of the Internet of Blockchains — no matter what blockchain they run on. More here.

Once you’ve logged in using your Keplr wallet you’ll be able to trade tokens within the Cosmos ecosystem. In order to purchase CHEQ when the network is launched, you will need to have funds in your Keplr wallet, which you’ll exchange through Emeris — you can see an example of a completed trade from ATOM to OSMO below:

trade cosmos wallet cheqd blog

Note: When you go to Emeris or Keplr now you won’t see CHEQ listed as we are not yet live. We will share further instructions on how to add CHEQ to your Keplr wallet at a later date.

Now you have set up your Keplr wallet and integrated it with Gravity DEX you’re all set!

Get ready…

We’re extremely excited as our network launch is coming so very soon! And, we want to make sure that we reward our community. If you haven’t already, join our Telegram group, follow us on Twitter and sign up for a surprise here.

Enter the Osmosis lab… What you need to know

Product Vision for 2022 Part 2

Disclaimer: All information provided is intended to help users get set up on cheqd. However, we do not expressly recommend or mandate a certain approach. All actions taken are your personal responsibility.

In our previous blog, we guided you through getting setup on Emeris to access Gravity DEX (using your Keplr wallet). In this one we’ll share some information on Osmosis, another DEX you might see us on soon.

What is Osmosis?

Osmosis is a Decentralised Exchange (DEX) on the Cosmos network. We covered the differences between DEXs and CEXs (Centralised Exchanges) in a previous piece.

It is the first major application of the Inter-Blockchain Communication Protocol protocol at scale (IBC covered here), and, aside from its brilliant UI and overall branding and imagery, its features are proving to be a powerful application and new entrant to the DeFi ecosystem.

Built using the Cosmos SDK, Osmosis is its own sovereign blockchain with its own token — OSMO — used for network staking and governance. What makes Osmosis so ground-breaking for the Cosmos ecosystem, and in fact, the broader decentralised ecosystem outside of Ethereum, is the way in which Osmosis acts as an automated market maker, made possible through its liquidity pools.

If you’re just getting started with crypto the following section is a little more complex. Feel free to skip this to where we explain how to get set up on Osmosis.

Understanding the origination of Automated Market Makers (AMMs) and Liquidity Pools

Here we’ll explain what they are and why they are needed in decentralised finance (DeFi) but first, like many things in the Web 3.0 and DeFi space, it’s important to understand the existing world of trade finance.

Traditional exchanges, i.e. Nasdaq, London Stock Exchange, STAR, work through an order book model which records the average of the current bid and ask prices being quoted. In this model buyers and sellers come together to trade; buyers simply try to buy at the lowest price possible, and sellers try to sell for the highest price.

For a trade to be completed both parties must agree on a fair price meaning either the buyer comes up or the seller goes down. However, it’s not that simple because finding someone who wants to both buy that specific amount and for the price they are looking to sell for is unlikely.

Let’s use an example.

enter the osmosis lab cheqd blog apples

Photograph: Shutterstock

You’ve just picked 100 apples on a farm but suddenly you have to leave town and need to sell every single one of them. You have to sell them at the market price of $1 in order to have enough to pay the farm their fee. You can’t find anyone willing to pay this price and you can’t take them with you. You’re stuck. This is where market makers come in handy.

In this example, the market maker would be an individual or company who is permanently on hand to purchase the apples at the market price of $1. When you place a market order to sell your apples, the market maker will buy them from you even if it doesn’t have a buyer lined up. Likewise, the reverse is also true; a buyer can purchase the apples even if a seller isn’t lined up.

Market makers in return earn a profit through the spread between the bid and offer price as they bear the risk of covering the apple which may drop below the market price. Without them, it would take considerably longer for buyers and sellers to be matched up, which in turn would reduce liquidity, making it more difficult to enter or exit positions (or leave town). They also track the current price of assets by changing their prices — hence they ‘make’ the market. This is the same method that Centralised Exchanges, such as Coinbase and Binance, work, however, it is not truly decentralised whilst you have a market maker acting as an intermediary to exchange.

That said, although it is valuable to buyers and sellers alike, as market makers perform this delicate balancing act, they command a disproportionate amount of power over the market and ultimately act as an intermediary… a big no in the decentralised vision.

Enter AMMs and liquidity pools

Where traditional finance requires expensive and centralised intermediaries which have a level of power to manipulate prices, AMMs allow digital assets to be traded in a permissionless and automatic way.

This both embodies the ideals of blockchain and decentralisation generally and offers users and companies unique opportunities to trade more efficiently and cheaply whilst having total trust in the system makes it so. Before they arrived on the scene, liquidity, i.e. how easy it is for one asset to be converted into another, often fiat currency without affecting its market price, was difficult for DEXs.

AMMs offer a solution to scarce liquidity through liquidity pools; a shared pot of tokens that users can trade against. Users can create a liquidity pool and others can supply tokens to it. In return, like with traditional market makers, those that are willing to take on the risk of providing liquidity to the pool earn fees and other rewards. An explanation specific to Osmosis can be found here. At the time of writing Osmosis’ liquidity pools contain about $544 million in total value locked (TVL).

Note: for the purpose of engaging with cheqd through its token the information above is not required, however, we strongly believe in the value of educating and sharing what we’re learning with our community to help you better understand DeFi and support us in raising the awareness of the shift to Web 3.0.

You get all that? Good… let’s get set up on Osmosis

Head to Osmosis and click enter the lab. Once you’ve agreed to terms and you’re ‘in the lab’ you’ll see some trading pairs and a button to connect your wallet (bottom left of the dashboard).

enter the osmosis lab cheqd blog setting up

You can then select Keplr wallet which will automatically connect to your Keplr wallet if you’ve already set it up as a Browser extension.

And you’re in. If you’ve already deposited to your Keplr wallet you’ll be able to start engaging start exploring pairing and liquidity pools — all at your own risk.

Enjoy your first walk around the lab….

Further reading/viewing:

Get ready…

We’re extremely excited as our network launch is coming so very soon! And, we want to make sure that we reward our community. If you haven’t already joined our Telegram group, follow us on Twitter and sign up for a surprise.