This page will give you a brief introduction on how to manage liquidity pools. Let's dive in!
What is a liquidity pool?
- Fructify your investment
- How to enter a liquidity pool
- Withdrawing LP tokens from a liquidity pool
- Retrieving paired tokens from LP tokens
- Claiming rewards of a liquidity pool
- When to claim rewards of a liquidity pool
High level principles
A pool is made of 2 pairs, most of the pools on the Zero Exchange are paired with ZERO
Example: ZERO/AVAX, ZERO/zETH, ZERO/zSUSHI
You enter a pool by providing paired tokens: ZERO and another token. A pool emits a certain number of ZERO tokens per week between a start and end date: These are the rewards to be shared amongst all liquidity providers of that pool in function of their shares of the pool.
The benefit of being in a pool (for a pool delivering rewards in ZERO and in the context of the Zero Exchange):
- Earning rewards in ZERO by farming
- Earning rewards in ZERO as a percentage of the trades
- The rewards earned depends on your share of the pool
If you are very early in a pool, you could put a small amount and still have huge rewards until more and more people join, then your pool share goes down, and so does your share of the rewards
Pools are available on the 3 chains
A pool has a starting and end date : You can stay in the pool after the end date is passed, but you won't earn rewards anymore from the farming, you will still collect rewards from the trading fees.
When to get out of a liquidity pools? Up to you ...
- The longer you stay, the more rewards you earn (depends on your share of the pool of course)
- See the risk of impermanent loss: Depending on the price action of one the paired token you may chose to exist and re-enter later to optimise your initial stack of ZERO
- The liquidity pool has ended: Before exiting, please check again the risk of impermanent loss, you may want to time/delay your exit in some circumstances.
Risk: See impermanent loss
What are the fees?
- Entering/exiting a liquidity pool involves several steps, same for claiming the rewards: There are transaction fees for each step
- So from cheapest to most expensive to manage liquidity on the 3 chains: Polygon > BSC > Avalanche > Ethereum
Do we avoid the Ethereum chain then? Not necessarily: Depends where your tokens are (if you need to pay for the bridge costs or not), how much dollar value they represent and/or the share of the pool you would have, it could be worth it.
How do I find the pools where I'm providing liquidity?
- Go to the "Pools" section
- For current ("Live") pools you are in: Activate the checkbox "Staked only" and toggle on "Live"
- Toggle to "Finished" in case you are still in pools which have ended. At the time of writing: The "Staked only" checkbox only works with live pools
- Switch chain to check the pools on each chain