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When you add your token to a liquidity pool, you will receive Liquidity Pool (LP) tokens called HAKU-LP.
As an example, if you deposited HAKU and AVAX into a liquidity pool, you would receive HAKU-AVAX LP tokens.
The number of LP tokens you receive represents your portion of the HAKU-AVAX liquidity pool.
You can also redeem your funds at any time by removing your liquidity.
Providing liquidity is not without risk, as you may be exposed to impermanent loss.
It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. For example, whenever someone trades HakuSwap, the trader pays a 0.2% fee, of which 0.10% is added to the liquidity pool of the swap pair they traded on.
- 10 LP tokens are representing 10 HAKU and 10 USDC tokens.
- 1 LP token = 1 HAKU + 1 USDC
- Someone trades 10 HAKU for 10 USDC
- Someone else trades 10 USDC for 10 HAKU.
- The HAKU/USDC liquidity pool now has 10.010 HAKU and 10.010 USDC.
- Each LP token is now worth 1.00010 HAKU + 1.00010 USDC.
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 Yield Farms while still earning your 0.10% trading fee reward.