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  • What is Liquidity Providing (LP)?
  • What are the fundamental aspects of liquidity providing?
  • What rewards can be earned for providing liquidity?
  1. Guides

Liquidity Provider Staking

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Last updated 8 months ago

What is Liquidity Providing (LP)?

In the realm of cryptocurrency, providing liquidity means contributing assets to a liquidity pool. These pools are collections of funds secured in a smart contract and are a key feature of decentralized finance (DeFi) platforms, particularly in decentralized exchanges (DEXs) like Uniswap, Solidly, Sushiswap, or Thena.

What are the fundamental aspects of liquidity providing?

  1. Liquidity Pools: Fundamental to many DeFi platforms, liquidity pools are where assets are pooled for trading. They often include pairs of assets, such as Ethereum (ETH) and a stablecoin like USDC, in equal value proportions.

  2. Function of Liquidity Providers (LPs): Those who invest their assets in these pools, known as liquidity providers, facilitate trading and borrowing for other users. In exchange, they earn fees from the trades and transactions conducted in the pool.

  3. Receipt of LP Tokens: Upon contributing to a pool, liquidity providers receive LP tokens, symbolizing their stake in the pool. These tokens can later be used to reclaim their share of the pool's assets, along with any fees earned.

  4. Engaging in Yield Farming: LPs often participate in yield farming, where they strategically move their assets between pools offering the highest rewards, typically additional tokens, to maximize their returns.

  5. Associated Risks: Despite its potential profitability, providing liquidity carries risks, particularly impermanent loss. This occurs when the value of assets in the pool shifts from the time of deposit. A significant change in value can result in a loss upon withdrawal, even when considering earned fees.

  6. Contributions to the DeFi Ecosystem: Liquidity providers are pivotal in the DeFi space, enhancing the efficiency of trading and borrowing, thus bolstering the market's liquidity and stability.

What rewards can be earned for providing liquidity?

Harbor has instituted a unique solution to providing liquidity with the LP Staking Pool. This unique solution will reward users for staking LPs on the Harbor Market website to earn rewards, oHBR and USDT. These rewards will be token emissions in the form of oTokens and USDT collected from interest on the Harbor Market lending platform. To start, the LP Staking Pool will earn 50% of all fees collected from the protocol.

Any non-USDT rewards such as BTC, ETH, BNB, or USDC will be swapped to USDT before being distributed to the LP Staking Pool.

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