When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and share in the fees.
As an example, if you deposited HOPE and MATIC into a Liquidity Pool, you'd receive HOPE-MATIC LP tokens.
The number of LP tokens you receive represents your portion of the HOPE-MATIC Liquidity Pool.
You can also redeem your funds at any time by removing your liquidity.
Providing liquidity gives you a reward in the form of trading fees when people use your liquidity pool.
Whenever someone trades on HopiumSwap, the trader pays a 0.25% fee, of which 0.17% is added to the Liquidity Pool of the swap pair they traded on.
- There are 10 LP tokens representing 10 HOPE and 10 MATIC tokens.
- 1 LP token = 1 HOPE + 1 MATIC
- Someone trades 10 HOPE for 10 MATIC.
- Someone else trades 10 MATIC for 10 HOPE.
- The HOPE/MATIC liquidity pool now has 10.017 HOPE and 10.017 MATIC.
- Each LP token is now worth 1.00017 HOPE + 1.00017 MATIC.
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 HOPE Farms, while still earning your 0.17% trading fee reward.
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