# Liquidity Pools

![](https://1643455207-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F-MlAn5TL9-pSJxG2MRaf%2Fuploads%2FJiNHWN9RpL6a27sSnjVo%2Flp-w-t.png?alt=media\&token=5e7b9a1e-7b07-4e49-9b77-66fa5efa5bc0)

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](https://docs.friendly.market/products/amm/broken-reference) 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)*100`which equals **3.12% APR.**

## Impermanent Loss

{% hint style="warning" %}
Providing liquidity has its risks. Make sure you understand all associated risks with providing liquidity.
{% endhint %}

["Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet."](https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22)

Also check out [Binance Academy's explanation of the topic.](https://academy.binance.com/en/articles/impermanent-loss-explained)