Hey all, in this article I would like to present a (very) simple working data model of an AMM (automated money maker) using a “mock” LP (liquidity pool). I also want to show the impact of LP providers and how their additional liquidity, when deposited to one side, can greatly enhance the price of a token.
I am writing this article to provide context to the DRIP Reservoir. The Reservoir is all about the LP and the LP providers. Whilst all the “buying” and “selling” is taking place at the DRIP Fountain (which are transactions interacting with the LP), the Reservoir is an opportunity for LP providers to play a role in the price action.
But first, let’s run through a simple AMM data model. When I mean simple, it really is simple!
First, I would like to set the scene. This data model is not reflective of the DRIP Reservoir or any other LP. It is a “mock” LP. Did I mention that earlier? Good. Second, the data presented does not contain “taxes”. These figures are purely mathematical.
Okay, let’s define the tokenomics and parameters of this AMM & LP.
- My token will be called “ABC” and paired with “BUSD”
- My initial LP will contain 1000 ABC tokens and 100 BUSD tokens
- Each transaction (buy or sell) will be for 1 ABC token
Please note, my dataset will only display every 100th transaction until the last 10. The remainder I am hiding on purpose, for display reasons. Don’t worry, the hidden transactions all participated in the overall calculations.
Column 1 is the “ABC” token liquidity
Column 2 is the “BUSD” token liquidity
Column 3 is the “BUSD LP” where providers can put additional BUSD
Column 4 is the “BUSD/ABC” ratio (price for 1 ABC token)
Column 5 is the “ABC qty” (how many ABC tokens to buy/sell)
Column 6 is the “BUSD cost” for the “ABC qty”
The first dataset will be “buys only” and presented without any LP providers.
Notice as the ABC supply is decreasing, the BUSD supply is increasing as well as the ABC price (Column 4). With a real supply shock (< 10), the BUSD liquidity is now sitting between 10k — 333k and the ABC price between 1k — 16k!
The second dataset will be “sells only” (using data from above) and presented without any LP providers.
Same affect as buys, but for in reverse (for sells). Notice how quickly the BUSD liquidity and token price can plummet with massive sell pressure! With almost all ABC tokens sold, the BUSD liquidity is in the $30 dollar range and the token price merely $0.03 cents.
So, let’s introduce the LP providers. What if for each transaction (buy/sell), there was a 10 BUSD injection on the BUSD side by an LP provider?
The third dataset will be “buys only” and presented with LP providers.
What a difference! With a real supply shock (< 10), and a consistent 10 BUSD addition by LP providers, the BUSD liquidity is now sitting between 464k — 1.7M and the ABC price between 46k — 852k!
The fourth dataset will be “sells only” (using data from above) and presented with LP providers.
This is an interesting outcome. With massive sell pressure, but a consistent 10 BUSD addition by LP providers, the BUSD liquidity and token price are not plummeting as fast as earlier. With almost all ABC tokens sold, the BUSD liquidity is around 6k and the token price a modest 6.
This is AMM in action!
Wow! Just wow! What we’ve noticed is just how effective additional, consistent liquidity from LP providers can do to the overall health of the LP, the token price and how it’s possible to weather the storm of bear cycles and rocket to the moon in a bull cycle.
For those invested in DRIP, take notice. If each person can consistently do this in the DRIP Reservoir, I am sure the DRIP LPs and the DRIP price can be sustainable for years to come!
If you want to chat further on “all-things” DRIP, consider visiting my Telegram channel.
DRIP Reservoir — https://t.me/dripreservoir
If you want a DRIP buddy, consider using my address.
DRIP buddy — 0x91098AE2A2Edb12803c8Ec81805d86e32BfB39a7
Talk soon!
