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Providing Liquidity

Learn how to become a Liquidity Provider (LP) and earn fees by supplying tokens to the AMM pools.

💧 What is Liquidity Provision?​

Liquidity Providers deposit token pairs into pools to enable trading.

How it works:

  1. You deposit equal value of two tokens (e.g., 1,000 ETHO + 50 PSD)
  2. You receive LP tokens representing our share
  3. Traders swap against our liquidity
  4. You earn 0.3% fee on every swap
  5. we can withdraw anytime (burn LP tokens, get tokens back)

Example:

  • Pool: 10,000 ETHO / 500 PSD
  • You add: 1,000 ETHO / 50 PSD (10% of pool)
  • You receive: 10% of LP tokens
  • Traders swap: $10,000 volume per day
  • Fees generated: $30 per day (0.3%)
  • Our share: $3 per day (10%)
  • Annual yield: ~22% APY

🎯 Why Provide Liquidity?​

Benefits​

✅ Earn Passive Income:

  • 0.3% fee on all swaps
  • Compounding returns
  • 24/7 earning

✅ Support the Ecosystem:

  • Enable trading
  • Reduce price impact
  • Improve user experience

✅ Earn Additional Rewards:

  • DM token rewards (some pools)
  • Governance participation
  • Community recognition

Risks​

⚠️ Impermanent Loss:

  • Loss when token prices diverge
  • Can be significant
  • "Impermanent" (can reverse)

⚠️ Smart Contract Risk:

  • Bugs could cause loss
  • Audited but not guaranteed
  • Use at our own risk

⚠️ Market Risk:

  • Token prices can drop
  • Volatility affects returns
  • No guaranteed profit

📋 Prerequisites​

Before providing liquidity:

  • ✅ Both Tokens - Equal value of each token
  • ✅ ETH for Gas - ~0.01-0.02 ETH for transactions
  • ✅ Understanding of IL - Know the risks
  • ✅ Long-term Mindset - Best for patient investors

💧 Step-by-Step Guide​

Step 1: Choose a Pool​

Available pools:

PoolAPYRiskRecommended For
ETHO/PSD15-25%LowBeginners
PSILO/ETH20-40%MediumExperienced
MDAO/PSD10-20%LowConservative
DM/PSD25-50%MediumActive users

Factors to consider:

  • APY - Higher = more fees, but often more risk
  • Volatility - Stable pairs = less impermanent loss
  • Volume - Higher volume = more fees
  • Our holdings - Use tokens you already have

Step 2: Calculate Amounts​

You need equal VALUE of both tokens:

Example:

  • ETHO price: $0.05
  • PSD price: $1.00
  • You want to provide $100 total

Calculation:

  • $50 in ETHO: 1,000 ETHO
  • $50 in PSD: 50 PSD
  • Total: 1,000 ETHO + 50 PSD

Use the calculator on the liquidity page to auto-calculate.

Step 3: Access Liquidity Interface​

  1. Visit etherealoffering.org
  2. Click "Liquidity" in navigation
  3. Click "Add Liquidity"
  4. Select pool (e.g., ETHO/PSD)

Step 4: Enter Amounts​

Two ways:

Option A: Enter one amount

  • Type amount of first token
  • Second amount auto-calculates
  • Maintains correct ratio

Option B: Use max

  • Click "Max" on one token
  • Other amount auto-calculates
  • Uses all available balance

Example:

  • Enter: 1,000 ETHO
  • Auto-calculates: 50 PSD
  • Ratio: 20:1 (current pool ratio)

Step 5: Review Details​

Check the information:

Pool Share:

  • Our percentage of pool
  • Current pool size
  • Our contribution

LP Tokens:

  • How many LP tokens you'll receive
  • Represents our share
  • Needed to withdraw

Rates:

  • Current exchange rate
  • Our average entry price
  • Pool composition

Example:

Add Liquidity to ETHO/PSD

You're adding:
- 1,000 ETHO ($50)
- 50 PSD ($50)
- Total: $100

Pool share: 2.5%
LP tokens: 250
Current rate: 1 ETHO = 0.05 PSD

Step 6: Approve Tokens​

First time providing liquidity:

  1. Click "Approve ETHO"
  2. Confirm in MetaMask
  3. Wait for confirmation
  4. Click "Approve PSD"
  5. Confirm in MetaMask
  6. Wait for confirmation

Note: Only needed once per token.

Step 7: Add Liquidity​

Now you're ready:

  1. Click "Add Liquidity"
  2. MetaMask pops up
  3. Review transaction
  4. Confirm
  5. Wait for confirmation (~30 seconds)

Step 8: Receive LP Tokens​

After confirmation:

✅ LP Tokens Minted - Check our wallet
✅ Tokens Deposited - ETHO and PSD transferred to pool
✅ Position Active - You're now earning fees!

Verify:

  • LP tokens in wallet
  • Position shows on liquidity page
  • Pool share percentage correct

💰 Earning Fees​

How Fees Work​

Every swap generates fees:

Example:

  • Trader swaps 100 ETHO for PSD
  • Swap fee: 0.3% = 0.3 ETHO
  • Fee distributed to all LPs proportionally
  • You own 2.5% of pool
  • You earn: 0.0075 ETHO

Fees compound:

  • Fees added to pool
  • Our share grows
  • No action needed
  • Automatic compounding

Calculating Returns​

APY depends on:

  1. Trading Volume - More swaps = more fees
  2. Pool Size - Smaller pool = higher APY per LP
  3. Our Share - Larger share = more fees

Example calculation:

  • Pool: $10,000 TVL
  • Daily volume: $5,000
  • Daily fees: $15 (0.3% of $5,000)
  • Annual fees: $5,475
  • APY: 54.75%

Our earnings:

  • Our share: 2.5% ($250 in pool)
  • Our annual fees: $136.88 (2.5% of $5,475)
  • Our APY: 54.75%

Tracking Earnings​

View our stats:

  1. Go to "Liquidity" → "Our Positions"
  2. See:
    • Current value
    • Fees earned
    • APY
    • Impermanent loss
    • Pool share

Example:

Your ETHO/PSD Position

Deposited: $100 (1,000 ETHO + 50 PSD)
Current Value: $105
Fees Earned: $5
Impermanent Loss: $0
APY: 54.75%
Pool Share: 2.5%

📊 Understanding Impermanent Loss​

What is Impermanent Loss?​

IL occurs when token prices diverge:

Example:

  • You deposit: 1,000 ETHO ($50) + 50 PSD ($50)
  • ETHO price doubles to $0.10
  • Pool rebalances: 707 ETHO ($70.70) + 70.7 PSD ($70.70)
  • Our value: $141.40
  • If you just held: 1,000 ETHO ($100) + 50 PSD ($50) = $150
  • Impermanent Loss: $8.60 (5.7%)

Why "impermanent"?

  • If price returns to original, IL disappears
  • If you withdraw, IL becomes permanent
  • Fees can offset IL

IL Calculator​

Use our calculator:

  1. Enter initial deposit
  2. Enter price change
  3. See IL amount
  4. Compare to fees earned

Example:

  • Deposit: $100
  • ETHO price +100%
  • IL: -5.7% ($5.70)
  • Fees earned: +10% ($10)
  • Net gain: +4.3% ($4.30)

Minimizing IL​

Strategies:

1. Choose Stable Pairs

  • ETHO/PSD (one stable)
  • PSD/USDC (both stable)
  • Less price divergence

2. Provide Long-Term

  • Fees compound over time
  • Can offset IL
  • Price may revert

3. Monitor Positions

  • Check IL regularly
  • Withdraw if IL too high
  • Rebalance if needed

4. Diversify

  • Multiple pools
  • Different risk levels
  • Spread exposure

🔄 Withdrawing Liquidity​

When to Withdraw​

Good reasons:

  • Need the funds
  • IL too high
  • Better opportunity elsewhere
  • Pool APY dropped

Bad reasons:

  • Panic (temporary price drop)
  • Impatience (fees need time)
  • FOMO (chasing higher APY)

How to Withdraw​

Step-by-step:

  1. Go to "Liquidity" → "Our Positions"
  2. Click "Remove" on position
  3. Choose amount (25%, 50%, 75%, 100%)
  4. Review amounts you'll receive
  5. Click "Remove Liquidity"
  6. Confirm in MetaMask
  7. Wait for confirmation

You receive:

  • Our share of pool tokens
  • Includes fees earned
  • Proportional to LP tokens burned

Example:

  • You remove 100% of position
  • Burn: 250 LP tokens
  • Receive: 1,050 ETHO + 52.5 PSD
  • Includes: 50 ETHO + 2.5 PSD in fees

💡 Advanced Strategies​

Strategy 1: Range Provision (Future)​

Concentrated liquidity:

  • Provide liquidity in specific price range
  • Higher capital efficiency
  • More fees per dollar
  • Higher IL risk

Example:

  • ETHO price: $0.05
  • Provide liquidity: $0.04-$0.06 range
  • 5x more fees than full range
  • But IL if price exits range

Note: Coming in future upgrade (Uniswap V3 style).

Strategy 2: Yield Farming​

Earn additional rewards:

  • Provide liquidity
  • Stake LP tokens
  • Earn DM rewards
  • Double dipping!

Example:

  • Provide ETHO/PSD liquidity
  • Earn 20% APY in fees
  • Stake LP tokens
  • Earn 15% APY in DM
  • Total: 35% APY

Strategy 3: Rebalancing​

Manage IL actively:

  • Monitor price changes
  • Withdraw if price diverges
  • Rebalance manually
  • Re-provide liquidity

Example:

  • ETHO price doubles
  • Withdraw liquidity
  • Sell some ETHO for PSD
  • Re-provide at new ratio
  • Lock in gains

🔗 Resources​

🙏 Tips for Success​

✅ Best Practices:

  • Start small (test with $10-$100)
  • Choose stable pairs first
  • Understand IL before providing
  • Monitor positions regularly
  • Reinvest fees (compound)
  • Diversify across pools

❌ Avoid:

  • Providing more than we can afford to lose
  • Ignoring impermanent loss
  • Withdrawing too early (fees need time)
  • Chasing highest APY (often highest risk)
  • Providing to low-volume pools
  • Not understanding the risks

Next: Staking PSILO →

"Liquidity is the lifeblood of DeFi. By providing it, you nourish the entire ecosystem." 🍄✨