A liquidity pool is like a war chest of funds provided by users (known as liquidity providers) for people to trade with.
Anyone who provides liquidity earns from transaction fees
How can I provide liquidity in a liquidity pool?
You will have to stake equal amount of two tokens or crypto assets.
Let’s say you want to provide liquidity on WaultSwap for example, and you’re doing this with a BNB/WEX pair, this is what it means.
Assuming BNB is $100 per unit, and WEX is $1 per unit. Since they both need to have equal value, you’ll have to create liquidity with 1 BNB paired with 100 WEX tokens. This way, you have $100 in value for both tokens.
There’s more to providing liquidity that that however.
Have you heard the phrase “impermanent loss”?
You need to understand what impermanent loss is before you provide liquidity on any platform.
Find out all you need to know about impermanent loss here.
