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  • LP Tokens
  • Earning Trading Fees for Liquidity Providers
  • Impermanent Loss
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Liquidity Pools

PreviousHow To FarmNextAdding/Removing Liquidity

Last updated 3 years ago

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.

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 .

Earning Trading Fees for Liquidity Providers

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.

Impermanent Loss

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.

this article from Binance Academy
impermanent loss