How can one earn rewards by providing liquidity?
Providing liquidity brings opportunities that are rewarding
Since the beginning, the DeFi space has been quite fascinating. Over the years, a wide array of protocols have come in and only strengthened the ecosystem to make it a stellar experience for the investors and companies in the space. This explosion of popularity and a gigantic part of the sector’s growth is to be attributed to the global liquidity pools that enable the decentralization of liquidity to the users.
As of October 2021, the total value locked in liquidity pools in USD is $104.15B wherein these pools are quite popularly employed by decentralized exchanges (DEXs), borrow-lend protocols, synthetic assets, on-chain insurance, and yield farming. Financial services are facilitated through the use of liquidity pools in conjunction with smart contracts.
Liquidity in the CeFi modules is provided by a centralized organization, such as a bank, whereas it is typically provided by a market maker who connects buyers and sellers on a cryptocurrency exchange. However, in DeFi, liquidity is provided by individual users who are rewarded for depositing cryptocurrency. The rewards can take the form of a percentage of transaction fees or additional cryptocurrency tokens.
Key definitions that you need to know before moving forward:
- Liquidity Pool- Consider a liquidity pool as a collection of cryptocurrency assets that are secured by a smart contract. The funds can then be used for trades, loans, and a variety of other purposes.
- Liquidity Provider- A liquidity provider (LP) is a user who supplies cryptocurrency assets to a liquidity pool in order for the funds to be used for the associated DeFi protocol.
Liquidity providers must deposit a pair of tokens into liquidity pools available on say Uniswap or Pancakeswap for whatever cryptocurrency they chose to add liquidity for. They are incentivized for such activities and the rewards are distributed in the form of LP tokens.
Liquidity providers receive liquidity provider tokens (LPTs) in exchange for depositing real cryptocurrency assets. These LPTs represent the users’ share of the selected liquidity pool.
LPTs are similar to receipts in that they are used to establish ownership. At any time, the user may cash out their staked deposit using the LPTs.
Let’s look at an example to make it easier for the users to understand the process.
- If you want to add liquidity for $CAKE / $BNB pair then you need to deposit $CAKE and $BNB tokens into the liquidity pool available on Pancakeswap.
2. The tokens are always deposited in pairs, in this case, it is $CAKE & $BNB. After adding these tokens to the liquidity pool, the liquidity providers will get LP tokens in return. In this case, they will receive “CAKE-BNB LP tokens”
3. The main part comes into play when users want to earn rewards out of these LP tokens. This wish is fulfilled with the help of “Staking” these LP tokens at various platforms. Users can stake these LP tokens at LP staking dashboards of the respective projects and earn more rewards as per the staking rules.
DeFi Wizard has been delivering its services to various blockchain projects, Among the products that we offer to various blockchain projects, LP staking dashboard has really high demand— Here is the list
We create custom LP staking dashboards, which are compatible with multiple chains such as Ethereum, BSC, Polygon etc, for our clients as per their needs.
Throughout its existence, DeFi Wizard has placed a premium on the safety of its products in order to provide a seamless user experience for its customers.
Having served over 50+ clients gives us immense confidence in our services that is simply overwhelming.
About DeFi Wizard
DeFi Wizard is a market leader in providing smart contract-based solutions to blockchain companies in launching their tokens and post token launch services. It offers one-stop, one-click, multi-chain services catering to several essential needs.
Follow us for more updates!
Website | Blog | Telegram Chat | Telegram Announcements | Twitter
