Liquidity
(accessed via Trade > Liquidity)
A user can choose to provide liquidity to an existing pool (or create a new one) for a pair of tokens. Each pool has two tokens in it – held in quantities that represent an equal value of each token.
When a user provides liquidity, the exchange will give them an LP token in exchange for the tokens entered into the pool. This LP token represents the users share of the pool’s value and can be exchanged later for a share of the tokens held in that pool at the time liquidity is withdrawn. Users earn fees for providing liquidity, which are added to the value of the LP token automatically and will be released to the liquidity provider on withdrawal.
NOTE: While providing liquidity in a smart contract your tokens will no longer appear in your wallet, but will be visible by connecting your wallet to the DEX.
If available, the user may be able to farm their liquidity tokens in Meat, to earn additional rewards. While providing liquidity tokens are exposed to a risk known as impermanent loss or divergent loss.
How to Add Liquidity
Ensure your wallet is connected to the DEX (see Connecting Your Wallet).
There are two ways to add liquidity, the first, below, is the recommended method for providing liquidity for an LP pair available to farm under the Meat feature.
Recommended Method
Open the side menu and tap Meat.
Find the LP pair you wish to provide liquidity for, and toggle it open via the chevron on the right side.
NOTE: If you cannot find the token pair you wish to provide liquidity for, this means there are no Meat pools available for your pair. You can still add liquidity but will need to use the alternative method provided below.
On the left of the drop down pane, now visible, you will find a link reading Get (followed by the name of the LP pair). Tap on this link.
The DEX will open the liquidity provision page, with the details for your selected LP pair preloaded.
Enter the amount of one of the tokens you wish to provide as liquidity, the DEX will automatically calculate the correct number of the second token and enter it in the corresponding field.
Once everything looks satisfactory, tap Supply.
NOTE: It may be necessary to tap the Enable button before being able to use the Supply button. You will need to authorise the DEX to interact with your token before the transaction can be completed.
NOTE: If you have an insufficient balance of either token the supply button will not appear and a warning message will appear in its place, if this happens you will need to adjust your token inputs accordingly until the supply button appears.
Carefully review the figures in the next window and if they are satisfactory tap Confirm Supply.
You will then be prompted by your wallet app to approve the transaction and the associated transaction fee (paid with Binance Smart Chain BNB).
Alternative Method
The second method for providing liquidity is more suited to providing liquidity for a pair where there is no Meat farm available to stake your LP token.
Ensure your wallet is connected to the DEX (see Connecting Your Wallet).
Open the side menu and tap Trade > Liquidity.
Tap on the Add Liquidity button visible at the bottom of the pane
Under the Input fields tap the dropdown and select the tokens in your wallet that you would like to provide liquidity for.
NOTE: If you cannot find the tokens you would like to provide liquidity for, in the dropdown, you can manually enter the contract addresses of the desired tokens. When adding the token using a contract address read the warning message carefully.
Now enter the amounts of the tokens you would like to provide liquidity for. If liquidity already exists for the pair, you will need to provide liquidity in the matching ratio. However, if no liquidity exists for the pair you are providing, then a warning message will be displayed at the top of the pane.
Once everything looks satisfactory, tap Supply.
NOTE: It may be necessary to tap the Enable button before being able to use the Supply button. You will need to authorise the DEX to interact with your token before the transaction can be completed.
Carefully review the figures in the next window and if they are satisfactory tap Confirm Supply.
You will then be prompted by your wallet app to approve the transaction and the associated transaction fee (paid with Binance Smart Chain BNB).
Once approved, the transaction will be sent to the network for processing. Though this usually takes only about a minute, when the network is under high demand, transactions can take much longer.
When complete, the tokens will be removed from your wallet and replaced with the LP token for the pair you supplied.
YouTube - How to add liquidity for a pair?
How to Remove Liquidity
Ensure your wallet is connected to the DEX (see Connecting Your Wallet).
NOTE: If your LP tokens are currently staked within the Meat feature, you must first unstake them there, before performing these steps.
Open the side menu and tap Trade > Liquidity.
Tap on the Add Liquidity button visible at the bottom of the pane
Locate the LP token you wish to remove and tap the dropdown, review the details and if you they are satisfactory tap Remove.
Now enter the amount of the LP token you would like to remove and tap on Remove.
NOTE: It may be necessary to tap the Enable button before being able to use the Supply button. You will need to authorise the DEX to interact with your token before the transaction can be completed.
Carefully review the figures in the next window and if you are happy click Confirm.
You will then be prompted by your wallet app to approve the transaction and the associated transaction fee (paid with Binance Smart Chain BNB).
Once approved, the transaction will be sent to the network for processing. Though this usually takes only about a minute, when the network is under high demand, transactions can take much longer.
When complete, the LP tokens will be removed from your wallet and replaced with the tokens for the pair you originally supplied.
YouTube - How to remove liquidity for a pair?
Features and Concepts
Impermanent Loss
As the tokens staked in a liquidity pool are held in quantities that represent equal value, the number of each token (or the value of those tokens) will adjust constantly to maintain the balance. When a pool holds too many of one token its value will be below the market value and arbitrage traders will buy these discounted tokens to sell elsewhere for profit. This will rebalance the pool. Likewise, where the value of a token changes, the quantity of each token that the LP token represents will also change.
These changes can result in a situation, where a user would be better off simply holding their tokens, rather than providing liquidity. However, if the rewards received by providing liquidity exceed the losses incurred through impermanent loss, then the user will still be in profit regardless, when compared to simply holding.
Impermanent loss is impermanent (not permanent), because should the ratio between the two tokens' relative values return to the same point as when the tokens were placed in the liquidity pool, the liquidity provider would suffer no loss, as compared to simple holding.
Providing neither token falls in value, any loss incurred would only represent a reduced profit, not a loss of the liquidity provider's principal.
Example: Let's imagine we have a pool of $100 in LEON (at $0.046) and $100 in BUSD. We placed 2,174 LEON and 100 BUSD into the pool at an APR of 100%.
A month later prices have changed so that LEON is now worth $0.041, the pool has been balanced through arbitrage so there are still equal dollar values of each coin in it. If we withdrew our LP token at this point we would receive 2,305 LEON and 94.41 BUSD. This is a loss of $11.16 (vs. the $10.87 we would have lost if we had simply held our tokens in our wallet). However, over the same period we have earned at least $15.65 in LEON as rewards, so we are still better off, as compared to simple holding.
Impermanent loss can seem like a complex subject, but the main points to remember are:
Liquidity pairs are based on the value ratio between two tokens
If the token ratio changes (i.e. both tokens don't move the same percentages in the same direction), that is impermanent loss
Impermanent loss only becomes actual loss when you withdraw tokens from the liquidity pool, otherwise there's always the chance the token ratio could regain balance
If both tokens increase in value, any impermanent loss only affects potential profits
For further examples of impermanent loss as well as links to some helpful resources, check out our guide on Impermanent Loss.
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