An Introduction to Thorchain’s Liquidity Pools
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What is a liquidity pool?
You can view a liquidity pool as two stacks of assets. These assets have been deposited by liquidity providers (= LPs). In return for depositing their assets, LPs earn a yield.
Liquidity pools are used by traders to swap one asset for another, they pay a network and a slippage fee.
The LPs earn a yield from fees generated by the pool. Thorchain’s liquidity pool fees can be divided into two separate fees block rewards and slippage fees.
Block rewards come from Thorchain’s own rewards emissions and are paid to every pool which has processed a swap in that block. The more swaps were performed, the higher the fee is relative to the other pools. If no swaps have been made in a block, the block rewards are shared by all the active pools.
The second fee is based on the amount of slippage a swap accrues. The amount of slippage depends on the depth of the pool and the volume of the swap. The deeper a pool, the lower the slippage fee. The bigger the volume of the swap, the higher the slippage fee.
How to become a Liquidity Provider
To become a LP you will need RUNE and an asset of your choice which is listed on BEPSwap. BEPSwap is the current interface to interact with Thorchain. To obtain RUNE or an asset of your preference you can either swap it on BEPSwap or another exchange.
To interact with BEPSwap you’ll need a wallet, I recommend using Trustwallet. You can connect your wallet by clicking on “add wallet” in the top right. Select “walletconnect” and scan the QR code with your trustwallet app. Approve the connection on your phone. Your wallet is now connected.
Look for the pool you’d like to add liquidity, click “manage”.
Make sure you select “Add (your asset) + RUNE”. Now move the slider to select the amount you want to add. Once you’ve selected the correct amount, drag the blue circle to the right to add your funds to the pool.
Confirm the transaction with the wallet on your phone. You’ve now added liquidity to a pool.
To withdraw your funds from a pool you always have to wait 24h after you last added assets to that particular pool. After that you can withdraw your assets at any time.
Look for your pool on BEPSwap, click “manage” and select the tab “withdraw” and choose the amount of funds you’d like to withdraw.
Drag the blue circle to the right and confirm the transaction on your phone. Your assets will appear in your wallet shortly.
How to track your returns
The community has built a few different tools to track returns. I recommend using at least one of them. They will help you understand how the pools function in different situations and help you gain valuable insights.
These tools are still being tested; bugs might be present. Nonetheless they’re a must for every serious Liquidity Provider:
- Another valuable tool which deserves a mention is runedata.info This tool shows you the historical performance of each individual pool and compares it against holding either asset or both. You can also see your future returns.
Written by @Bitcoin_Sage
Thorchain is a decentralised Liquidity Network which facilitates cross-chain liquidity pools with no pegged or wrapped tokens. Swap between assets across chains. Stake assets to earn yield. Run a node to service the network.
Published by Turing Research Network
Official documentation: docs.thorchain.org