Adding Liquidity & Liquidity Pools
The most interesting feature of an automated market making (AMM) platform is allowing users to provide liquidity by adding their tokens to liquidity pools and receiving Liquidity Provider Tokens (LPs). Users can also remove their liquidity by sending back the LP tokens to our smart contract and receive their initial tokens. The share from trading fees that users earn will reflect in the conversion rate of LP tokens. For example:
- There is 1 LP token representing 1 ALI and 1 USDT token
- 1 LP token = 1 ALI + 1 USDT
- Someone trades 1 ALI for 1 USDT
- Someone else trades 1 USDT for 1 ALI
- The ALI/USDT liquidity pool now has 1.02 ALI and 1.02 USDT
- Each LP token is now worth 1.02 ALI + 1.02 USDT.
There is a known risk for liquidity providers: Impermanent loss. Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet. But the benefits of providing liquidity usually exceed the risk in the long term. Users can simply hold the LP tokens and earn their share of trading fees for the trading pairs, or maximize their funds by putting their LP tokens into yield farming programs and earn more profits.
To provide liquidity, you’ll need to commit an amount of any token pair you like. Your lowest value (in USD) of the two tokens will be the limit to the liquidity you can provide. Below is the instruction on how to add liquidity using ALI and USDT.
2. Click the "Add Liquidity" button and you will see the add liquidity interface.
3. For the top Input, click "Select a currency" and pick USDT.
4. For the bottom input, click "Select a currency" and pick ALI.
5. Enter an amount on one of the tokens under “Input”. The other will calculate automatically.
(If your balance is too low on one pair, enter a lower amount.)
6. Click the "Approve" button for 2 tokens. Your wallet will ask you to confirm the action.
7. The "Supply" button will light up. Click it.
8. A window will appear saying how much you will receive. Click the "Confirm & Supply" button. Your wallet will ask you to confirm the action.
9. After a short wait you will see your LP Token balance at the bottom of the page.
You can repeat the steps above to add more liquidity at any time.
You can also remove liquidity to get back the initial amount of USDT and ALI plus your share of trading fee for the USDT-ALI pair (reflecting in an additional amount of USDT and ALI you receive). Below is the instruction on how to remove liquidity from the ALI-USDT liquidity pool.
2. Click on your pair under “Your Liquidity”.
3. Click "Remove". A new window will appear.
4. Use the buttons or slider to choose what percent to remove. Choose MAX to remove everything.
5. Click "Approve". Your wallet will ask you to confirm the action.
6. The "Remove" button will light up. Click it.
7. A window will appear saying what you will receive. Click "Confirm". Your wallet will ask you to confirm the action.
8. After a short wait you will see your new LP Token balance at the bottom of the page. The amount of USDT and ALI you removed will appear in your wallet.