LP Farms or Yield Farming provides the opportunity to users to earn rewards by staking liquidity provider (LP) tokens in the Yield Farms. The rewards you receive depends on the APR of the Yield Farm you're staking in.
Anyone can deposit tokens to liquidity pools to become a liquidity provider on eZKalibur and start to earn trading fees from the liquidity.
Each farm has its own APR, depending on the value of LP tokens, and price of $SWORD.
By providing liquidity, you will receive Liquidity Pool (LP) tokens. These LP tokens track pro-rata shares of the pool reserves and can be redeemed for the underlying assets at any time.
Trading Fees distributed to Liquidity providers
To ensure that there's always enough liquidity on the platform for smooth trading, we incentivize investors to provide liquidity by paying a big portion from the 0.25% trading fee to them whenever someone swap their tokens on eZKalibur.
68% of this fee is returned to liquidity pools as a reward for liquidity providers.
This way, liquidity providers will earn 0.17% of all trades in the pool. For example, in a trade of 100,000 USDC, 170 USDC are added to the liquidity pool and can be collected by liquidity providers.
While earning trading fees, providing liquidity does come with the risk of impermanent loss.
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.