Liquidity Pools
Learn about Liquidity Pools
By providing liquidity to a pool, you'll earn a 0.25% fee on all trades proportional to your share of the pool. Fees can be claimed by withdrawing your liquidity.
How do LPs earn fees?
Every time a swap happens in a pool, a 0.3% fee is applied. Of which 0.25% goes to liquidity providers while the rest gets split between the Friendly Market treasury and superREI holders.
The fees do not get sent directly to LPs wallets, instead they are added to the pool, increasing your position.
Example:
There are 1000 CSPR and 1000 USDC in a pool
There are 1000 LP tokens in circulation. Meaning 1 LP token = 1 CSPR + 1 USDC
Alice swaps 100 USDC to CSPR
LP fees are 0.25 USDC (0.25% of 100USDC)
Bob swaps 100 CSPR to USDC.
LP fees are 0.25 CSPR
Pool now has 1000.25 CSPR + 1000.25 USDC.
1 LP token is now worth 1.00025 CSPR + 1.00025 USDC
How is APR Calculated?
Pool APR is calculated based on the pool's 7-day volume.
Example:
Pool CSPR-USDC has $50M in liquidity
7-day volume for pool CSPR-USDC is $10M
To calculate the fees, we multiply the volume by 0.003 (0.3%) which equals $30,000
Remember we want to caluclate yearly rewards, so we multiply 30,000 by 52 (365/7) which equals $1,560,000
All that is left now is to divide the yearly volume by total pool liquidity and multiply by 100 to get the percentage:
(1,560,000/50,000,000)*100which equals 3.12% APR.
Impermanent Loss
Providing liquidity has its risks. Make sure you understand all associated risks with providing liquidity.
Also check out Binance Academy's explanation of the topic.
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