A Guide on How to Use Diesel Pools

avatar
(Edited)

Apparently, George Bernard Shaw said, in a play over a century ago, this line:

Those who can, do; those who can’t, teach

which later translated into a truncated version:

Those who can’t do, teach

As someone who has been in both camps to some degree, I know they both come with their challenges.

Someone who does is not necessarily well-equipped to pass his knowledge to other people, or they don't have the patience or time to do it. That's where teachers do their part...

From the student's perspective, the best teachers are the ones who also do, because they understand the practical aspect of their teachings better, and adapt the courses to match those aspects.

Ok... That was a pretty long preamble.

Hive - The Onion

A long time ago (maybe on the other chain), I compared Hive to an onion, with many layers one on top of another. To get to the core, one would need to peel the onion one layer at a time or cut it and extract the core.

What do I mean by this?

To understand Hive, you either understand it at a shallow level, then peel another layer to go deeper and understand that level, and so on, until you reach the core (very few people do that), or you go right to what interests you and focus only (mostly) on that.

It is a process, and it applies to Hive, the blockchain, and to its ecosystem.

I've been asked to explain how diesel pools work.

Hive has a base layer, where the core blockchain functions, where all the security lies, account management happens (including wallet transactions), posting and voting are handled, and HIVE Power/HBD rewards are distributed. It's also the level where governance and proposals are managed.

Then Hive has 2nd layers. Not only one of them. Functional, there's DLUX, where SPK/Ragnarok projects are being developed, among the popular ones.

And there's Hive-Engine, which is the first 2nd layer for Hive. That's what we'll focus on because here we have diesel pools.

Actually, the hive-engine.com website doesn't support diesel pools, but we'll get to that. I don't even recommend using this website anymore, because you are losing out on new features.

So, what is a diesel pool?

What Is a Diesel Pool?

A diesel pool is a place (thus, pool) where two tokens are paired together to provide liquidity to those who want to swap between the two tokens. Swapping means exchanging from one token to the other.

The two tokens are paired at a 50:50 ratio, initially calculated based on the market price of the tokens at the time of adding to the diesel pool. This balance is always kept through a mechanism called the Automated Market Maker (AMM).

When people swap tokens in a diesel pool, there is a 0.25% fee paid to liquidity providers, proportional to their share of the pool.

Liquidity providers are compensated in two ways:

  • fees for swapping (always)
  • potential rewards, if added for that diesel pool

There are two interfaces you can use for diesel pools:

I use them both. The better place to check rewards and APRs is Beeswap.

Impermanent Loss

You see this everywhere as the biggest risk associated with defi: impermanent loss.

I can tell you. It's not. Other than rug pulls, the biggest risk in defi is both tokens going to zero. Actually, one token going to zero is enough to make a liquidity pool (diesel pool) worthless. The number of tokens needed from the other side to keep the 50:50 ratio with the token going to zero would keep getting lower and lower until they become irrelevant.

But let's talk about impermanent loss.

As the name says, it only becomes permanent, if you make it so. Meaning if you withdraw liquidity. Otherwise, it's still impermanent.

Without going into details, how does impermanent loss work?

Well, you enter your tokens A and B into the pool at certain dollar values.

To keep the 50:50 ratio between them, as the prices of A and B fluctuate, the number of A and B tokens in the pool fluctuates. If their dollar value is lower than the dollar value at the time of adding the liquidity, then that's called impermanent loss. And it can be a temporary thing, just like it can be temporary for a token (or a stock) to lose from its market value when you buy, and then, maybe, increase.

How to Deal with Impermanent Loss (IL)?

There are multiple ways to deal with impermanent loss:

  • you remove it from the equation: when you enter stable pools (where both tokens are stablecoins), the impermanent loss should not exist (counter-example: UST, which lost its peg forever)
  • you make it a non-issue: when you want both tokens equally and don't care which one of them you have more of when you withdraw liquidity, then IL doesn't matter
  • risky and often non-productive: wait until tokens go back up.

How to Select the Diesel Pools to Provide Liquidity For?

There are multiple ways to do that.

First things first, you should check out their rewards and APRs. As I mentioned earlier, it's best to do that from Beeswap. Here's an example for SWAP.HIVE:SPS:
image.png

In the red rectangle, you can find information like the average APR, the APR for BXT (that's the token of Beeswap), when will the next rewards be paid, and for how many days are there still rewards in the distribution contract (unless more are added), and anything else that may be important to know.

Above that, you see the list of tokens that are rewarded for this pool.

This diesel pool is an exception, and I've chosen it on purpose. Most diesel pools related to Splinterlands also have rewards paid out by Splinterlands directly, but those are not shown on these interfaces. To see them, you need to go to the Splinterlands website, and look at the management page for pools:

image.png

On TribalDex, on the other hand, you can see the volumes for each diesel pool and the generated fees:

image.png

Now, let's get to the point. How to select the diesel pool to select liquidity for.

Here are some potential strategies:

  • select the diesel pool where you need both tokens (you won't care about IL much)
  • select the diesel pool that protects against a bear market or IL (two stablecoins - note: doesn't protect against potential issues with Hive-Engine)
  • select a diesel pool with only one stablecoin
  • select by the highest APR (not recommended without further conditions)
  • select by the highest APR, where you have some level of confidence in the tokens in the pool
  • select by the tokens you receive as rewards

How to Add Liquidity to a Diesel Pool?

I use TribalDex to add liquidity. But I think it's just a matter of habit. The process is the same on Beeswap.

On TribalDex, on the top menu, there's Pools. Click on it. You'll reach the Diesel Pools page.

There are two ways to add liquidity to a diesel pool:

  • asymmetrically
  • symmetrically

Don't worry, these are just fancy words to describe simple situations. When adding asymmetrically, you only have one of the tokens from the diesel pool.

Suppose you want to add SIM asymmetrically to SWAP.HIVE:SIM. What you have to do is sell half your SIM for SWAP.HIVE first. That's it! Then follow the process below for adding liquidity symmetrically (I won't mention 'symmetric' anymore, since it makes reading harder).

To add liquidity, you go to the 'Add Liquidity' menu on the Diesel Pools page, and from there you choose the pool to add to, and the amounts for the two tokens (it's enough to add the amount for one token, the other is calculated by default).

image.png

How to Remove Liquidity from a Diesel Pool?

To remove liquidity, from the same Diesel Pools page as above you click Remove Liquidity.

There you select a percent of your liquidity you want to withdraw. You'll be presented with what that means for each of the two tokens. And you click Remove Liquidity. That's it!

image.png

Conclusion

That's what I could think of to include in a basic guide for diesel pool. Maybe there's more. Or maybe some information still needs more explaining. But it's a starting point. Questions in the comments, please.

Posted Using LeoFinance Beta



0
0
0.000
34 comments
avatar

Best not to enter if you want to grow your holding on a particular token, not a good feeling when it keeps going down.

0
0
0.000
avatar

Sometimes people speculate on that and enter particularly for this reason. To hold more of a certain token in row numbers, when its price goes down significantly more than the paired token.

0
0
0.000
avatar

For me, I think this is the most valuable post I'll read this week. I've been on the Tribaldex for sometime(mainly to swap tokens) and I always see this diesel pools but I never had a simple explanation of their purpose or what they do.

Thank you for this simple guide! Next time I visit, things will be more familiar and I'll be able to add liquidity to one of the pools based on the potential strategies you mentioned in your post.

0
0
0.000
avatar

I'm glad you found this guide useful. Those were only some strategies I could think of at the time of writing. It also helps that you can withdraw your liquidity from diesel pools at any time. Both adding and withdrawing liquidity are without fees and you can do them as often as you want and in any quantity (something you can't do in most other liquidity pools on other platforms).

0
0
0.000
avatar

I think I'll go with the second(a pool that protects you from a bear market or IL) and last(the tokens you receive as rewards) strategies because they seem more sensible to me.

That's a great advantage over other platforms, easy access to liquidity and without fees.

0
0
0.000
avatar

Usually, you should combine strategies. Such as (in an ideal combination) a diesel pool where you need both tokens + you like the tokens received as rewards + a good APR.

0
0
0.000
avatar

This post has been manually curated by @bhattg from Indiaunited community. Join us on our Discord Server.

Do you know that you can earn a passive income by delegating your Leo power to @india-leo account? We share 100 % of the curation rewards with the delegators.

Please contribute to the community by upvoting this comment and posts made by @indiaunited.

0
0
0.000
avatar

This is very informative.
However, maybe you could make this more clearer:

The two tokens are paired at a 50:50 ratio.

I am getting that this is based on the current price of the assets at the time of providing the liquidity and not providing the same quantity of each asset?

!CTP

Posted Using LeoFinance Beta

0
0
0.000
avatar
(Edited)

Exactly. It's based on the market price of each token at the time of adding liquidity.

Thanks for pointing this out. I updated the post.

0
0
0.000
avatar

Thank you so much for this excellent breakdown of how liquidity pool work. I've been contemplating about trying out the LP of late, mostly after one of your post. But I needed more info about how things work on those two DEX.

So when you join any pool, for how long do you remain in the pool. Or each pool have specific condition as to how long you remain? For example there's a Polygon chain powered DeFi, and 1 month is the time limit, if you leave the pool before 1 month, then there's going to be penalty.

0
0
0.000
avatar

Rules change from protocol to protocol and mainly from platform to platform.

That's why I focused exclusively on diesel pools in this post.

What I can tell you is that the decision is made when you know what you are dealing with, the details of the protocol and platform, and the products and services offered. Personally, that's why I haven't ventured to many defi platforms. Because rules change from one to another, and I simply can't keep up.

0
0
0.000
avatar

Great review! Let's see how good it will be for newcomers. I use BeeSwap now (more convenient for me), although I started with Tribaldex.
!ALIVE
!CTP

Posted Using LeoFinance Beta

0
0
0.000
avatar

Thanks! Yeah, the newcomers were the target audience. I'm curious if that's clear for them or not.

0
0
0.000
avatar

There were not so many of these Diesel Pools tutorials and this one is a MUST READ for everyone who wants more information!
Thanks for creating it!


I have picked this post on behalf of the @OurPick project and it will be highlighted in the next post!

Comment Footer.jpg

Posted Using LeoFinance Beta

0
0
0.000
avatar

Thanks, Zoltan! I appreciate your feedback on it.

0
0
0.000
avatar

Awesome post, Adrian.
I appreciate you explaining the pools. It makes much more sense now.
As I start to dabble, I will let you know if I have any questions.

!CTP

Posted Using LeoFinance Beta

0
0
0.000
avatar

How to Deal with Impermanent Loss (IL)?
you remove it from the equation: when you enter stable pools (where both tokens are stablecoins), the impermanent loss should not exist

And we do have the ability to conduct stablecoin farming on Hive thanks to the SWAP.HBD:SWAP.BUSD LP:

Hive DeFi stablecoin yields paid in BXT.

The pool currently pays a 10% APR in BXT rewards.

While this is half what you get for simply putting your native HBD in savings, you gain the advantage of being entirely liquid.

Having instant access to your HBD during Korean led pumps can more than make up for the 10% you're sacrificing.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Yes indeed! Sometimes having liquid stables at hand can be a blessing. There are also some semi-stable pools on Hive-Engine, where a stablecoin is paired with BEE, with WORKERBEE, or with SWAP.HIVE (unless HIVE is pumping, then this isn't stable at all).

Thanks for your valuable contribution!

0
0
0.000
avatar

I think that is a fairly good guide and I do recall there being a few scam LP pools. Sometimes you need to check the liquidity before swapping on those pools.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Price impact is always shown when you attempt to make a swap. If you have a limit of 0.5% set, it won't even make the swap if you don't pay attention and the price impact is higher than that.

0
0
0.000