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.

"Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet."

Also check out Binance Academy's explanation of the topic.