Liquidity is the total value of offers to buy or sell Bitcoin for close to the market price. Liquidity prevents orders from “slipping” to higher prices as you trade on an exchange. For this reason, high liquidity is critical to any exchange.
All exchanges get their liquidity from market makers, traders that continuously buy and sell Bitcoin to retail customers. Exchanges offer discounts to market makers, which gives them an advantage in making profit over retail users.
Yield Farming
LVL does not work with third party market makers. All liquidity on LVL is provided by Yield Farming, an automated market making strategy available to LVL Premium users. Yield Farming earns a potential income by selling liquidity to LVL users, 24/7.
We believe that liquidity ultimately belongs to the community, not the exchange. Autopilot is an experiment in democratizing market making, ensuring high liquidity, and capturing value for LVL Premium members.
Liquidity Outages
Many market making algorithms are designed to avoid running out of liquidity by charging exponentially higher prices when they run low on assets to trade. This makes it less attractive for most to buy liquidity. And the people that do buy at exorbitant prices are usually doing so on accident.
To prevent members from getting negatively impacted on LVL while our liquidity grows, LVL implements a 2% price guarantee on all market orders. This means that members will never pay higher than a 2% premium to purchase liquidity. Because the price of Bitcoin is volatile, people are frequently willing to pay more than a 4% premium to buy Bitcoin, and in turn this leads to times when liquidity on LVL sells out.
To date, LVL has seen a greater than 95% availability of liquidity throughout the day. As more users enroll in Autopilot every day, liquidity is improving and liquidity outages are more rare. LVL’s improving marketplace health also allows LVL to roll out algorithmic changes to Autopilot, which in turn improves liquidity. Thank you for your patience as we bring market making to the community, and the community brings liquidity to LVL.