Liquidity pools are a type of deposit that allows traders to swap assets. These deposits are made possible by liquidity suppliers contributing their funds to various liquidity pools. Block rewards and swap fees are used to compensate exchange liquidity providers, and they receive a yield in return. Traders use liquidity pools to exchange one asset for another; they pay a network and a slippage charge.
Two Types of Fees
Block rewards are provided to every pool that has performed a swap in that block and come from Thorchain’s own rewards emissions. The greater the charge is in comparison to other pools, the more exchanges were done. If no swaps were made in a block, all active pools split the block rewards.
The amount of slippage a swap incurs determines the slippage fee. Therefore, the quantity of slippage is determined by the swap volume and pool depth. The slippage cost is reduced as the pool depth increases. The slippage cost rises in proportion to the size of the swap.
How Fees are Generated
Traders generate fees every time they make a trade. The height of the fee is determined by the volume of the swap in relation to the pool’s depth. When the swap size is larger, the slippage is more, which benefits liquidity providers.
Specifically, every block, which lasts about 5 seconds, rewards are distributed. RUNE and the pool’s associated assets are used to pay liquidity providers. Someone who contributed to the RUNE: BTC pool, for example, will be rewarded in both RUNE and BTC. The awards are contributed to the pooled money of the liquidity provider.
How to Become a Liquidity Provider
You’ll need RUNE and an asset listed on Thorchain to become a Liquidity Provider. Moreover, interacting with Thorchain is currently done using BEPSwap. You can either swap RUNE or another asset on BEPSwap or another exchange to get RUNE or an asset of your choice.
You’ll need a wallet to communicate with Thorchain. Thus, I recommend Trustwallet. Trustwallet is also available for download on your phone. Additionally, by selecting Add Wallet in the top right corner of the screen, you can connect your wallet to BEPSwap (see image below). Choose walletconnect and approve the connection on your phone by scanning the QR code with your Trustwallet app. Your wallet has been linked.
You must always wait 24 hours after you last added assets to a pool before withdrawing your funds. You can then withdraw your funds at any moment. Also, on BEPSwap, find your pool and click manage. Now, go to the withdraw tab and enter the amount you’d like to withdraw. On your phone, drag the slider to the right and confirm the purchase. In a few moments, your assets will show in your wallet.
A maximum of 10% of the pool’s assets can be withdrawn. Withdraw smaller portions (10%) many times if you own a larger percentage of the pool.
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