Liquidity Pools and Adding Liquidity
Digicom liquidity pools allow you to provide liquidity by adding your tokens to liquidity pools or “LPs”. When you add your token to a liquidity pool (LP), you will receive LP tokens (Digicom version of liquidity provider tokens).
As an example, if you deposited $DCOM and $MATIC into a liquidity pool, you would receive DCOM-MATIC LP tokens.
The number of LP tokens you receive represents your portion of the DCOM -MATIC liquidity pool. You can also redeem your funds at any time by removing your liquidity.
Providing liquidity is not without risk, as you may be exposed to impermanent loss.
It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. Whenever someone trades DCOM, the trader pays a 0.25% fee, of which 0.18% is added to the liquidity pool of the swap pair they traded on.
- There are 10 DCOM LP tokens representing 10 DCOM and 10 MATIC tokens.
- 1 DCOM LP token = $1 DCOM + $1 MATIC
- Someone trades 10 DCOM for 10 MATIC.
- Someone else trades 10 MATIC for 10 DCOM.
- The DCOM/MATIC liquidity pool now has 10.017 DCOM and 10.017 MATIC.
- Each LP token is now worth 1.00017 DCOM + 1.00017 MATIC.
To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh yield on the DCOM farms, while still earning your 0.18% trading fee reward.