Hello friends, hope we are enjoying the season. In this article, I expounded and lucidly demystified the concept of spot trading and liquidity pool staking in view of an effective investment option by critically analyzing the two positions.l
Many people have asked the question and are also perplexed on: when to invest in cryptocurrency, the certainty of grabbing success on spot trades since they aren't professional traders and also the possibility of making ends meet through staking in liquidity pools. However, given this height of individual bewilderment, let's observe the respective concept of staking in the liquidity pool and spot trading at this point but first, let's scrutinize the issue of staking in liquidity pools.
Staking in cryptocurrency is an investment option that demands an individual to invest all or some of his crypto assets into a liquidity pool, which gives him the privilege to earn a percentage of the same or another token provided by the pool in question. Hence this makes such an investor a liquidity provider to the said pool. On the other hand, spot trading is another investment measure that grants a trader the opportunity to purchase some quantity of token in order to earn as those tokens increase in value.
Although the two spectrums are safe cryptocurrency investment options, they convey a certain level of risk at some points. However, let's randomly observe the risks and benefits of staking into liquidity pools, having understood the nitty-gritty of its concept.
Waste of time and resources.
The cryptocurrency market is quite difficult to accurately predict at some points. No one knows exactly where the price of a particular token will hit and probably reverse which makes it difficult to know when and which pool to invest at each time. For instance if a pool should offer an enticing annual percentage of returns for investors to earn Leo token, and probably an Investor provides about 1000 USDT into the said pool in view to earn some Leo at 30 days interval given a stipulated pool entry price. However, if the price of Leo should trade below the entry position within the 30 days period, the investor who provided the 1k USDT has no profit despite his time and resource input.
liquidity pool failure and project rug-pull.
It's normal these days where most liquidity pool owners rug-pull their projects on account of deficient ideas on how to maximize profit using those projects. Consequently, there are instances where pools also fail to distribute yields to Investors given to malicious tech experts activities like hacking. All these are usual scenarios in cryptocurrency which means that liquidity pool staking isn't absolutely a risk free Investment medium.
None effective government protection.
We know that the government as an agent of the state is out for the safety of its citizens. On the contrary, the crypto space lacks adequate government regulation at the moment that should have efficiently protected the interest of investors in seeking redress in the court of law if need be. However, given this, Investors become more vulnerable by staking into fake liquidity pools since everyone would love to have a quick recovery of his capital within the shortest time period.
Constant returns of Investment.
Most liquidity pools are very flexible, meaning that an investor can easily deposit and withdraw his asset at any time. On the other hand, despite the little risk involved in staking in liquidity pools, one is assured of constant returns based on his pool of choice. A perfect example of this investment scenario is the HBD savings pool which permits investors to lock and unlock their positions based on personal discretion.
High Investment yield.
There are varieties of liquidity pools that offer high rates of returns to investors. On the other hand, staking into these pools will guarantee consistent high yields although contingent upon an investor's volume and level of input. Consequently, there are traders that may not be able to make huge profit if they should trade on spot or future positions through exchanges but staking into liquidity pools provides a stress-free investment returns.
Low risk of investment.
In most flexible pools, liquidity providers have nothing to lose so long they have their assets staked in those places. This scenario is quite different on spots and other trading systems like CFD, margin, futures etc. When trading your asset yourself or probably by an expert, there is the tendency to lose and also gain a reasonable portion of your asset in question. Nonetheless, most liquidity pools offer low risk of investment which the HBD savings pool is one among the numerous pools that guarantees zero Investment risk.
At this point, having gained the nitty-gritty of staking in liquidity pools, Let's also observe the relative issue to spot trading which is also another safe Investment spectrum on its own.
Although this has been expounded above but In nutshell, spot trade in cryptocurrency is another safe investment system that permits traders to enter and also exit the cryptocurrency market at different intervals after profits or losses have been made. Spot trading as we know is done on either decentralized or centralized exchanges. Nonetheless, let's theoretically observe the risks and benefits associated with this system of Investment.
Wrong market entry and exit positions.
This is a major concern with most spot traders. The issue isn't absolutely about the low risk associated with spot trading when compared to other trading routes. However, most day traders who trade on spot lack the capacity of when to enter and also exit from their trades. Which makes them exit at little or no profit.
In another instance, there are scenarios where spot traders make losses when the deep turns to peak although this sounds funny but these are positions where spot traders purchase tokens with the intention they purchased from the deep unknown to them that the market will keep going deep. In essence, wrong market entry causes loss of assets.
Trading as an amateur.
The fact about trading is that it's difficult to trade but more dangerous to trade as an amateur. No amateur spot trader makes a continuous profit from the market despite the volume of money he comes onboard with. Consequently, even at the low level of risk involved in spot trading, amateur traders often get it wrong if not guided by professional traders.
Low returns.
There is an adage in investment which posits that the higher the risk, the higher the returns and vice versa. Spot trading is the least risky type of trade which on the other hand gives a low return when compared to the profit that could be accumulated through futures or margin trade. For instance, a trader who trades in futures could leverage ten to even fifty and above percent of his staked capital which would further help him in earning higher returns but in spot trade, one does not have such privilege which makes the profit growth on spot very non substantial.
There are many benefits associated with spot trade which includes but not limited to: low level of risk, appreciation of asset value, absence of liquidation. Let's take a look at these as they affect spot trading.
Low level of risk.
Like CFD and other forms of trade which have a very high risk, on the other hand, the risk involved in trading on spot is very minimal compared to them. At the most, professional spot traders can have their asset values depreciated rather than losing its maximum quantity. On the other hand it's easier for any trader either professional or amateur to trade on spot than other forms of trade which makes it a friendly trade system that could be managed by all
Appreciation of asset value with no liquidation position.
This is also another benefit of spot trade. There is never a down crypto market without a corresponding bull market which makes it possible never to lose everything. Although an investor may not grab the big pie in an instant using spot trade, he is certain of an increase in his asset value based on his positions of entry and exit. For instance, if a trader purchased BTC $20,000 and its price now rally around $40,000, he is certain that the value of his asset has appreciated in a multiple of two.
On the other hand, there is never a point where a spot trader would say he got liquidated which is a status quo in other trading systems like future trading. Consequently, a trader can only have the value of his asset depreciated without a reduction in its quantity so long as he holds on to the asset he is holding.
Liquidity pool staking is a good means of Investment although it's not without risk. Spot trading on the other hand is another pretty investment option which also has a certain level of risk. However, investing in either of these rostrums absolutely depends on an investor's preference and knowledge of what's best for him in the crypto space. Thank you for going through.