I’ve noticed that many people don’t understand how to properly analyze pool yield and the potential risks. Because of this they just hold tokens in their wallet or stake them with long lockups missing out on the chance to earn extra profit📈.
So here’s a quick guide for you on liquidity pools using STON.fi the DEX on $TON as an example🧙♂️.
Profit
First it’s important to know that liquidity providers earn profit from the fees collected when users swap tokens in a given pair🔁. Your income depends on the trading volume in your pool and the fee percentage you get per swap. You can see the fee rate directly in the pool.
Also if more liquidity is added to the pool your APR will drop and vice versa. That’s why it’s best to look at the average APR over at least one month☝️.
RISK
The only additional risk you take when providing liquidity is impermanent loss. It happens when one token in the pair moves significantly in price compared to the other📊. For example if you provide liquidity to the NOT/TON pool and NOT drops or rises 2x while TON stays flat you lose about 5% of your assets. If $NOT returns to its original price that loss disappears.
🕹️ Play around with an impermanent loss calculator online to better understand these risks.
But if you choose the right pool the APR can easily cover those risks. Let’s look at an example👇.
Example
The PX/USDT pool has decent volume and a 0.7% swap fee. Because of this the average APR over the past month is 79% . I believe that #PX token has 2x growth potential🚀. So 79% minus a potential 5% impermanent loss equals 74% net APR. And if reinvest rewards every month you can realistically get up to 100% APR(APY).
By the way this pool is much more profitable than #Notpixel official staking which offers 24% APY😅.
To reinvest your rewards you need to withdraw all your liquidity and redeposit it. STON.fi doesn’t charge any fee for doing this.
Best liquidity pools on STON.fi
Drop your questions in the comments👇!
