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 XSP and XDC into a Liquidity Pool, you'd receive XSP-XDC LP (XSP2) tokens.
The number of LP tokens you receive represents your portion of the XSP-XDC 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 XSwap, the trader pays a 0.3% fee, of which 0.214% is added to the Liquidity Pool of the swap pair they traded on.
- There are 10 LP tokens representing 10 XSP and 10 XDC tokens.
- 1 LP token = 1 XSP + 1 XDC
- Someone trades 10 XSP for 10 XDC.
- Someone else trades 10 XDC for 10 XSP.
- The XSP/XDC liquidity pool now has 10.0214 XSP and 10.0214 XDC.
- Each LP token is now worth 1.00214 XSP + 1.00214 XDC.
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 XSWAP Farms, while still earning your 0.214% trading fee reward.
Providing liquidity is not without risk, as you may be exposed to impermanent loss.