🛀Liquidity Pools

When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and share in the fees.

LP Tokens

A liquidity provider token is essentially a receipt that a protocol provides to a user who adds liquidity to a decentralized exchange. CakeDaoSwap allows you to provide liquidity by adding your token pairs to liquidity pools, using equal amounts for each token.

As an example, if you deposited CDAO and CORE into a Liquidity Pool, you'd receive CDAO-CORE LP tokens.

The number of LP tokens you receive represents your portion of the CDAO-CORE Liquidity Pool.

You can also redeem your funds at any time by removing your liquidity.

Liquidity Provider Benefits

There are two main ways that you can earn rewards after adding liquidity. As soon as a user creates an CDAO-LP token and holds it in their wallet, they begin collecting trading fees. When transactions occur on the DEX that involve the tokens represented by a particular CDAO-LP token, fees collected on those transactions are distributed proportionally among the holders of the applicable LP tokens.

Stake your CDAO-LP tokens in Yield Farms to earn CDAO. Multi token reward will be updated.

Liquidity Providers earn swap fees

Providing liquidity gives you a reward in the form of swap fees when people use your liquidity pool.

Whenever someone swaps on CakeDaoSwap, they pay a 0.5% fee, **of which 0.2% ** is added to the Liquidity Pool of the swap pair they traded on.

For example:

• There are 10 LP tokens representing 10 CDAO and 10 CORE tokens.

• 1 LP token = 1 CDAO + 1 CORE

• Someone trades 10 CDAO for 10 CORE.

• Someone else trades 10 CORE for 10 CORE.

• The CDAO/BNB liquidity pool now has 10.028 CDAO and 10.028 CORE.

• Each LP token is now worth 1.00028 CDAO + 1.00028 CORE.

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 CakeDao Farms, while still earning your 0.2% swap fee reward.

Impermanent Loss

Providing liquidity is not without risk, as you may be exposed to impermanent loss.

So what is Impermanent Loss?

Impermanent Loss occurs when the price ratio of the supplied token pair changes. As a simple rule, the more volatile the assets are in the pool, the more likely it is that you can be exposed to impermanent loss. As the AMM dictates that the total liquidity must remain the same, the ratio is readjusted in order to establish an equilibrium.

The ‘impermanent’ part of IL is an apt description, as the value of the token may yet return to its initial price if it is left in the pool. If the price realigns, then the IL no longer exists, however, if the investor withdraws their funds from the liquidity pool, then the loss is realized fully.

Impermanent loss is caused by a bidirectional change in the value of either one or both tokens within a pair.

The more volatile the underlying tokens are in the pool, the more likely you are to experience Impermanent Loss

Impermanent Loss is not permanent and is only realized when you withdraw from a Liquidity Pool.