When a given crypto token only has one liquidity pool, that generally makes things pretty easy. For anyone who wants to participate, they only have one place to put their stake, and then the pair either changes with the given LPs market or it adds with fees and farming rewards, if they apply.

However, when there are multiple LPs on the same blockchain, especially with a new entry, things start to get complicated as well as easily manipulated. This is the case between specific WAX blockchain liquidity pools in Taco as well as Alcor Exchange, especially those with a new launch and smaller universe.

This Involves Some Math, Sort Of

The math works off of two things: how much of a token is available in the pools to begin with, and then how many players and their percentages are involved. However, when you have a player who is working the same token in two different pools that draw on the same overall supply, odd things start to happen. Generally, it's a matter of supply and demand. The more supply that is available, the less value it has per unit. The less supply, the more it goes up in value due to scarcity.

Supply & Demand Applied

So, if you have two or more liquidity pools that all draw on the same supply, then they are all going to be affected by scarcity of the same as it gets gobbled up. However, within the pools themselves, it can also lower price by supply, particularly between the trade off between the paired coins. What? Yes. There can be a momentary disconnect between pools working off the same token. Generally, this disconnect doesn't last long. Why? A number of trading bots are working around the clock when pools get big enough to balance things out, but in smaller, newer pools this doesn't exist as strongly, and that gap creates complications. 

Here's how it works. A player builds up a supply of a given token. No surprise there. Either it's collected, bought or obtained through some kind of acquisition. Got it. Then, there needs to be a pairing, an equal amount in a partner coin, usually one that is already a standard with a known value and far more stable price. With enough of a collection in a given pool that drives demand, and price starts to move up. The same happens in a second pool already due to other players. Now, both pools are balancing their pairs, and this is when liquidity starts to matter. Both pools have now started absorbing most of the availability of the new token. That leaves what is on the market as a shrinking population, so its price starts to rise in value. The pools are helping this by doing what they do best, providing liquidity. But it's not working fast enough, so one pool gets pitted against the other.

Competition Breeds Opportunity

Without additional pairing supply, the pools that exist start to become strained if they get a run on their existing supply. And that's what the big player looks for, a vulnerable pool. He or she suddenly makes a hard demand focused on the swap the vulnerable pool supports. But with that supply the player then puts the volume obtained in the other pool supporting a different swap. Doing so drives up price, but the supply doesn't exist in the original pool, so its liquidity fees get more expensive, driving price further. This drives traffic to the second pool, pushing up its demand. Watching profit being made on the new position, the player then liquidates the second position in the second pool, removing liquidity, and selling off the new token. Suddenly, straight supply is available. The swap that needs it is the one with the vulnerable pool, so it pays premium. Profit, profit and more profit. But the price is now falling. The player does this until breakeven point. Now it's time to go back into the pool, buying new supply at a lower price again and repeat the play between the two pools and same token market. 

No One Wins Forever

At a certain point, the original pool-influencing player gets outclassed. By who? Bigger whales doing the same thing. However, the fluctuations in the overall market get smaller and smaller because it takes more volume to effect the same changes. Ultimately, it stops except for really, really big whales, and the market stabilizes except for overall pumps and drops. 

What I just described is a unique growth window phase in new token markets when competing liquidity pools are created for the same, and the market is small enough to move with purchases and sales between the two pools. It takes timing, a good amount of cash to work with up front, and fast-acting decisions. Generally, this window may last a few days, even a week or two until the given token market grows big enough to reach the stabilization point. And then it is over.