What is the difference between a liquidity pool and a vault? When is it more appropriate to refer to stacking? In the crypto world it’s easy to feel disoriented when it comes to the meaning of certain words. Although these terms share similar properties, they behave differently and those who have just approached the crypto world may find it quite difficult to stay on track.
In this article we will delve into each specific term in order to help you have a better insight about how they work.
What is a liquidity Pool?
Liquidity pools are pools of tokens that are stored in a smart contract. They are used to facilitate trading by providing liquidity and are extensively used by some of the decentralized exchanges a.k.a DEXes. One of the first projects that introduced liquidity pools was Bancor, but they became widely popularised by Uniswap.
What is a Vault?
LYOPAY users can organize funds into different wallets, or they can store their currencies in a vault. But what is a vault? A vault is like a typical wallet. But unlike the wallet, it prevents stored funds from being instantly withdrawn as it adds optional security steps. With a vault, before withdrawing your currency, this must go through a secure approval withdrawal process. Moreover, a vault allows you to divide your ownership between multiple users, which are then allowed to approve a transaction.
What is staking?
Staking is a method of storing assets very similar to the previous one. It’s related to the Proof of Stake consensus mechanism. During stacking, a token holder, also called validator, locks his token in a digital wallet. Being a holder, he can participate on the PoS network. Validators are allowed to forge blocks and approve transactions, earning a reward in return for their work. The reward is a network fee. Stacking is a great way to earn passive income.
Cryptocurrency trading is the process of speculating on cryptocurrency price movements or buying and selling coins through an exchange. Cryptocurrencies exchanges allow you to store your crypto tokens in a wallet and sell them. Crypto markets are decentralized, there’s no third-part or central authority issuing or validating the transactions.
As you can see, there are multiple methods to store your fund and digital assets. The only way to choose one is to find out which way is the most suitable for your needs.