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Here’s Why Protocol-Owned Liquidity Is the Future of Web3


As the dawn of Web3 grows nearer, the need for decentralized applications (dapps) and businesses to offer secure, low-cost liquidity services is becoming increasingly apparent. To meet this future need, crypto protocols that own their own liquidity pools are gaining traction in the blockchain space – offering everything from a provable source of capital to open marketplaces and alternative business models. In this blog post, we’ll examine why protocol-owned liquidity represents an exciting advancement in economic scaling and financial ecosystem development within Web3 technology. We’ll explore some of its benefits, how it works, and why it’s become such an important part of blockchain finance today

What Is Protocol-Owned Liquidity?

Protocol-owned liquidity is when a DeFi protocol, like a DEX, keeps some of its own liquidity in its smart contracts. This provides trading pairs and maintains enough liquidity for new assets listed on the protocol.
A DeFi protocol can ensure enough liquidity for trades on its platform even during low market activity by holding its own liquidity. Moreover, it can lessen the effect of impermanent loss for liquidity providers as the protocol takes on some of the market fluctuations risks.
To attract more traders and investors, protocols can offer rewards or tokens to liquidity providers who deposit their funds directly into the protocol’s smart contracts. This incentivizes liquidity and increases trading volume and liquidity depth on the platform.

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