Providing Liquidity
Decentralized Finance typically consists of four key features: Swapping, Providing Liquidity via staking to the Liquidity Pool, Lending, and Borrowing.
Swaps and AMMs are best when instant. To be instant and even to perform trades en masse, liquidity is needed. On a centralized exchange, the liquidity is provided by the exchange predominantly, and it's users.
On a decentralized exchange, liquidity is provided almost entirely by the users. An equal share of the return is given to users relevant to how much they have entered. This makes the high APY of some liquidity pools a good passive income strategy. The main risk of Liquidity Pools is Impermanent Loss - which is basically the return one could be making by holding the coin, compared to providing liquidity. Our platform is one of the few with as Live as possible readings for Impermanent Loss.
To learn how to provide liquidity, head to the Swap section.
Read more about Impermanent Loss on the Bancor Network Blog.
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