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Liquidity Pools
PuddingSwap pools allow you to provide liquidity by adding your tokens to liquidity pools.
When you add your token to a liquidity pool you will receive Liquidity Pool (LP) tokens.
As an example, if you deposited HOO and USDT into a liquidity pool, you would receive HOO-USDT LP tokens.
The number of LP tokens you receive represents your portion of the HOO-USDT liquidity pool.
You can also redeem your funds at any time by removing your liquidity.
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Providing liquidity is not without risk, as you may be exposed to impermanent loss. “Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman
It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. Whenever someone trades HSwap, the trader pays a 0.25% fee, of which 0.15% is added to the liquidity pool of the swap pair they traded on.
For example:
- There are 10 LP tokens representing 10 PUD and 10 HOO tokens.
- 1 LP token = 1 PUD + 1 HOO
- Someone trades 10 PUD for 10 HOO.
- Someone else trades 10 HOO for 10 PUD.
- The PUD/HOO liquidity pool now has 10.015 PUD and 10.015 HOO.
- Each LP token is now worth 1.00015 PUD + 1.00015 HOO.
To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh yield on the PUD farms (link), while still earning your 0.15% trading fee reward.
Last modified 2yr ago