Providing the liquidity pools with specific liquidity results in users receiving Wigo-LP tokens and a share of the fees generated.
Let’s make this clear through an example. Consider that you deposit WIGO and FTM Into the liquidity pool. You would then receive WIGO-FTM LP tokens. The amount of Wigo-LP tokens you receive manifests your share in the WIGO/FTM liquidity pool. You can claim your funds at any given moment by simply removing your liquidity from the pool.
As users of the platform use the liquidity pool in which you’ve deposited liquidity, you will receive rewards in the form of the fees generated from trading. Trading on WigoSwap costs the traders a 0.19% fee. 0.18% of this amount is added to the certain liquidity pool users are trading in.
For the sake of clarity, an example is provided:
- The amount of liquidity in a pool is 10 WIGO and 10 FTM. Therefore, 10 Wigo-LP tokens represent this amount.
- As a result, 1 Wigo-LP token = 1 WIGO + 1 FTM.
- Consider that a trader trades 10 WIGO for 10 FTM. Another trader also trades 10 FTM for 10 WIGO.
- The liquidity pool, namely WIGO/FTM, now has 10.018 WIGO and 10.018 FTM.
- Caused by the fees generated, Wigo-LP tokens are now worth 1.0018 WIGO + 1.0018 FTM each.
To unlock the full financial potential of providing liquidity to the pools, WigoSwap enables you to use your Wog-LP tokens on WigoFarm to gain higher yields. Moreover, you still benefit from the rewards obtained in the form of trading fees.
Providing liquidity is not without risk. Impermanent Loss happens when the price of the assets you’ve deposited into the pool changes compared to when you deposited them. This concept is an indispensable part of providing the pools with liquidity.