Liquidity Pool, A low risk passive income medium. ๐ค๐ค๐ค
If you want to earn passive income with lowest risk then read this. .
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What is a Liquidity Pool?
A liquidity pool is a smart contract that holds two or more cryptocurrency tokens in a decentralized exchange (DEX).ย Liquidity pools encourage investors to earn passive income by staking their crypto in the pool.ย In return, liquidity providers (LPs) receive a percentage of the cryptocurrency they have locked into the pool, as well as a portion of the trading fees that their liquidity helps facilitate.ย
Provider's income consists of:
In-In-Pool Fees:- 2% on each trade. Final amount depends on volumes traded within the pool
Farmingย (if available): 0.1% daily (or 36.5% yearly) and up. Payouts are regular until the program expires
Earning on In-Pool Fees:- Example:
This money-making strategy is known as liquidity mining. Assume an LP provides 50% of the pool's total liquidity. A trader swaps 1,000 USDTE for 10 HUB, paying a fee of 0.2% on the token sold, i.e. 2 USDTE (1,000/100*0.2). Since the LP has half of the total liquidity, they'd earn 1 USDTE.
Earning in Farming Program:- Example:
This money-making strategy is known as yield farming. Assume an LP provides 50% of the HUB-USDTE pool's total liquidity and that pool participates in a farming program offering 0.2% in daily rewards, accrued in HUB. The total liquidity of the pool stands at 4,000 HUB, meaning the LP owns 2,000 HUB in liquidity. 0.2%*2,000 HUB=4 HUB, that's the farming reward the LP would get.