Liquidity Pools
Last updated
Last updated
When you add tokens to a Liquidity Pool you will receive Liquidity Provider (LP) tokens in return and you will earn a share in the fees just by holding on to the LP Tokens.
As an example, if you deposited XOXO and AVAX into a Liquidity Pool, you'd receive XOXO-AVAX LP tokens. The number of LP tokens you receive represents your portion of the XOXO-AVAX Liquidity Pool. You may also redeem your funds at any time by removing your liquidity.
Providing liquidity is not without risk, as you may be exposed to .
Providing liquidity gives you a reward in the form of trading fees when people swap tokens using your liquidity pool.
Whenever someone trades on HunnySwap, the trader pays a 0.3% fee, of which 0.18% will be added back to the Liquidity Pool of the swap pair they traded on.
For example:
There are 10 LP tokens representing 10 XOXO and 10 AVAX tokens.
1 LP token = 1 XOXO + 1 AVAX
Someone trades 10 XOXO for 9.97 AVAX.
Someone else trades 10 AVAX for 9.97 XOXO.
The XOXO-AVAX liquidity pool now has 10.018 XOXO and 10.018 AVAX.
Each LP token is now worth 1.00018 XOXO + 1.00018 AVAX.
To make being a liquidity provider even more worth your while, you can also stake your LP tokens to earn an additional yield on Hunny Farms, while still earning your 0.18% trading fee reward.
If you’re considering supplying liquidity to one of the liquidity pools in order to farm, it’s important to understand the effects of impermanent loss. For a great guide on impermanent loss, check out.