Liquidity Providing FAQ

How Do I Start Providing Liquidity?

• Set Up a Wallet: Ensure you have a compatible wallet connected to CrossDex.

• Select a Liquidity Type: Choose between providing concentrated liquidity (CLMM) or constant product liquidity (CPMM).

• Follow the Steps: Use the respective guides to add your liquidity to the chosen pool.

What Are the Benefits of Providing Liquidity?

• Earn Trading Fees: Liquidity providers earn a portion of the trading fees generated by the pool.

• Incentive Programs: Participate in incentive programs and earn additional rewards, such as CDE tokens.

• Support the Ecosystem: Providing liquidity supports the overall health and functionality of the CrossDex ecosystem.

What Are the Risks of Providing Liquidity?

• Impermanent Loss: The risk that the value of your deposited tokens changes unfavorably compared to holding the tokens separately.

• Market Fluctuations: Price volatility can impact your liquidity position and earnings.

• Smart Contract Risks: DeFi platforms are built on smart contracts, which can have vulnerabilities. Always do your research and consider the risks.

How Are Fees Distributed to Liquidity Providers?

• Proportional Distribution: Fees collected from trades are distributed proportionally to all liquidity providers based on their share of the pool.

• Accrued in Real-Time: Fees are added to the liquidity pool in real-time and can be claimed when you withdraw your liquidity.

Can I Withdraw My Liquidity at Any Time?

• Yes: You can remove your liquidity at any time. Navigate to the "Liquidity" section, select the pool from which you want to withdraw, and follow the steps to remove your tokens.

• Withdrawal Process: The process involves burning your LP tokens to retrieve your underlying assets along with any accrued fees.

How Do I Monitor My Liquidity Positions?

• Liquidity Dashboard: Use the "My Liquidity" section on CrossDex to monitor your liquidity positions, including your share of the pool, earned fees, and potential impermanent loss.

• Performance Metrics: Track key performance metrics such as total value locked (TVL), pool share, and fee earnings to make informed decisions.

• Adjustments and Rebalancing: Regularly review your positions and consider rebalancing or adjusting your liquidity provision strategy based on market conditions and personal goals.

What is Impermanent Loss and How Can I Mitigate It?

• Impermanent Loss Explained: Impermanent loss occurs when the value of your deposited tokens changes relative to their initial value at the time of deposit. It is a temporary loss that becomes permanent only when you withdraw your liquidity.

• Mitigation Strategies:

  • Choose Stable Pairs: Provide liquidity for pairs with lower volatility to reduce the risk of impermanent loss.

  • Diversify: Spread your liquidity across multiple pools to mitigate risk.

  • Monitor and Adjust: Regularly monitor your positions and adjust your liquidity ranges or pairs as needed to minimize exposure to impermanent loss.

Are There Any Additional Benefits to Providing Liquidity on CrossDex?

• Staking LP Tokens: Some pools may offer additional rewards for staking LP tokens. Check the "Farming" or "Staking" sections for opportunities to earn extra rewards.

• Governance Participation: As a liquidity provider, you may have the opportunity to participate in governance decisions, helping to shape the future of the CrossDex platform.