When you add tokens to the liquidity pool, you receive Liquidity Provider (LP) tokens and share fees.
When tokens are deposited into a crypto liquidity pool, the platform automatically generates a new token that represents the share the depositor owns of that pool. This is called a liquidity provider (LP) token, and it can be used for a multitude of functions both within its native platform and other decentralized finance (DeFi) apps.
There are many kinds of LP tokens on the DEX, It’s up to pairs of tokens that providers add to liquidity pools.
If you deposit CORK and BNB in the liquidity pool, you will receive CORK - BNB LP tokens. The number of LP tokens you receive represents your portion of the CORK - BNB liquidity pool. You can also eliminate liquidity and then repay your funds at any time.
By providing liquidity, you are rewarded in the form of transaction fees when others use the liquidity pool.
Whenever someone trades on Winery Swap, the trader pays a 0.17% fee, of which 0.12% is added to the Liquidity Pool of the swap pair traded.
There are 10 LP tokens representing 10 CORK and 10 BNB tokens.
- 1 LP token = 1 CORK + 1 BNB
- Someone trades 10 CORK for 10 BNB.
- Someone else trades 10 BNB for 10 CORK.
- The CORK/BNB liquidity pool now has 10.012 CORK and 10.012 BNB.
- Each LP token is now worth 1.00012 CORK+ 1.00012 BNB.
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 CORK Farms, while still earning your 0.12% trading fee reward.
Providing liquidity is not without risk, as you may be exposed to impermanent loss which means tokens in the AMM pool instead of your wallet and you may not be able to withdraw full fund until there are others adding more of the same tokens to the pool.