Maximizing Your Returns in Liquidity Pools: 4Tips and Best Practices.
Your choice of liquidity pool to supply should be based on these metrics.
Congratulations on reaching the end of these series, previously
- You learnt everything about Liquidity pools on Ston.fi.
- You learnt how to successfully supply to a Liquidity Pool.
- You saw the easiest way to withdraw funds from liquidity pool.
You’re ready to supply liquidity but you’re confused about the one to choose. They are 486 active Liquidity pools on Ston.Fi, so making a choice maybe a hassle.
After reading this guide, you will know the important metrics to look out for and how to use them to make informed decisions. It also pertinent to figure out how they fit into your overall liquidity strategy.
Let’s get to it !
1. First up is APR (Annual Percentage Rate).
This number shows you the annual yield of the pool based on the past 24 hours of data. Think of it as an estimate of how much you might earn if things stay the same throughout the year.
But remember, APR can change daily with fluctuations in trading volume and liquidity. So while a high APR is tempting, don’t forget to look at its consistency and historical trends to get a more accurate picture of what to expect.
2. Next is TVL (Total Value Locked).
This metric tells you the total value of tokens in the pool, expressed in dollars. Higher TVL usually means the pool can handle larger trades without affecting the price too much, which is great for both you and the traders.
More liquidity often leads to lower risk of slippage and better overall trading experience. It’s smart to check not just the current TVL but also how it has performed over time to gauge its stability.
3. Then there’s 24hr Volume
This shows the trading activity in the pool over the last day. A higher trading volume often means more frequent trades and, therefore, more fees earned by liquidity providers like you.
This can lead to increased earnings, but it’s essential to view this alongside APR and TVL to see how it fits into your earning potential.
4. Lastly, impermanent loss
Unarguably the metric you can’t just ignore. This happens when the value of your assets changes compared to just holding them due to price fluctuations. It’s called “impermanent” because it might be offset if the asset prices return to their original ratios.
Understanding the volatility of the tokens in the pool can help you estimate the potential impact of impermanent loss. Using calculators and historical data can give you a clearer picture of how this risk might affect your returns.
The Best Practise…
is all about balancing APR, TVL, and 24h Volume while keeping an eye on the potential for impermanent loss. By understanding how each of these factors plays into your overall strategy, you can make a more informed decision that aligns with your goals and risk tolerance.
Wrapping Up — What you’ve learnt in this Series.
In exploring liquidity pools, you started by getting to know their crucial role in decentralized finance.
Once you understood how they worked and why they’re important, you learned how to provide liquidity on STON.fi.
When it was time to withdraw your funds, you were ready with the knowledge needed for a smooth process.
Finally, by using tips and strategies to maximize your returns, you turned your liquidity involvement into a rewarding experience.
About — Ston.Fi, a decentralized automated market maker (AMM) on the TON blockchain, offering a near-zero fees, low slippage, and a user-friendly interface integrated with TON wallets.
