Liquidity Providing
Last updated
Last updated
Liquidity providing (LP) is all about providing pairs of tokens to the market (the pool of tokens), so others can then use them to trade. In return for providing liquidity to a market, the LP is offered a return on investment in the form of fees from swaps.
When adding liquidity, you will proportionally participate in the swap fees earned by this pool. The fees are accumulated in the liquidity pool effectively increasing the value behind your LP tokens. Fees will be collected remove liquidity from the pool.
Once you provide liquidity of a pair of tokens (in equal value proportion), you will receive LP tokens representing your share in the pool that you can exchange/redeem (remove liquidity) at any time for the underlying tokens.
You don’t have to do anything if you’re happy to just earn your pro-rata of the swap fees paid by the traders to the liquidity providers. However, if you choose to stake your LP tokens (and optionally lock them in order to receive bonus rewards), you would be able to participate in the BDX liquidity mining program and receive rewards in the form of BDX tokens.
Removing liquidity converts your LP tokens into the underlying tokens at the current rate. Accrued swap fees will be included in the amount you receive. Please note that the amount of token A and token B that you will receive will most likely be different from the ones you’ve originally supplied to the pool. The reasoning behind this is that the exchange rate of the two tokens in the pool changes with every swap. For example, if the price of token A goes up relative to token B, the amount of token A in the pool will go down, while the amount of token B will go up.
You can provide liquidity for any Blindex-accepted token (BD-Stables, BDX, Bitcoin, or ETH) as long as you have both tokens of the pair in your wallet. If you don’t have the right tokens you can always Mint new ones or Swap your existing tokens.
