👨🌾 What is Staking / Farming?
If you're not experienced with staking / farming, this article is for you
Last updated
If you're not experienced with staking / farming, this article is for you
Last updated
In order for a DEX to function, the platform requires token pairs with liquidity (See:)
Any user is able to provide liquidity to the DEX platform through staking / farming. In order to stake or farm, a user must temporarily remit their tokens to the Liquidity Pool (LP), which the DEX can utilize in order to facilitate token trading.
Users are rewarded for providing liquidity in various ways, most notable are Farming Rewards and LP Fees.
LP Fees are granted to liquidity providing users who hold LP Tokens in their wallet, whenever a user swaps a token using that LP, a small trading fee is distributed to the liquidity providers.
It is very important to realize that providing liquidity carries some risk, namely: Impermanent Loss.
Impermanent loss occurs when a user adds liquidity to a Liquidity Pool, and the ratio of tokens present in the LP changes.
For example, a user may add 100 "A" and 100 "B" tokens to a Liquidity Pool that has an equal amount of tokens. But as the value of "A" goes down, and the value of "B" goes up, the ratio changes to 150 - 50. Now when the user withdraws their portion of the Liquidity Pool, they will receive 150 "A" tokens, and 50 "B" tokens. Since the "A" tokens are now less valuable than the "B" tokens, the user has suffered some loss.
While providing liquidity can generate appealing returns, it carries some risk.
Never provide liquidity with funds you can't afford to lose.
Farming Rewards are granted to users who provide liquidity by farming their LP tokens on the Autotronic platform. The size of the reward is dependant on the amount of LP tokens staked, the total amount of LP tokens being staked in that specific farm, and the "weight" of that farm. The weight of a farm dictates the share of farming rewards being distributed to users farming in that specific pool.
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