Supercharge Your MEER Asset Growth: Mastering the Principles of Liquidity
🌊📊Liquidity provision is an important concept in the DeFi field. It is based on the fund pool model, which allows users to deposit two different tokens to form a liquidity pool, thereby providing a convenient trading environment for other trading participants. Qitmeer community users now have the opportunity to use idle MEER/USDT to participate in liquidity provision to earn additional transaction fees. In this way, they can not only unlock the earning potential of Meer Coin, but also lay the foundation for CandySwap’s liquidity.
Principles of Liquidity Provision
🧮📝The basic logic is as follows: the liquidity provider deposits the required Token A and Token B of the trading pair into the fund pool to provide liquidity, obtains the corresponding share of the LP token, which is a certificate that provides liquidity, representing its share in the entire liquidity fund pool, and allocates transaction fees according to its share.
Other trading participants can conveniently trade with the Token A/B trading pair in the liquidity pool, and the transaction fees generated by the transaction are subsidized by the liquidity provider. This realizes the closed loop of the economic model, which is also known as the provision of liquidity.
Simply put, the funds deposited by liquidity providers are like a pool, the transaction between buyers and sellers is a process of inflow and outflow. As long as the depth of the liquidity pool is large enough and the transactions between buyers and sellers are balanced, the price impact of the transaction is extremely low, and users can obtain the optimal price.
Source of liquidity income
⏰💎The liquidity income of CandySwap comes from users adding liquidity to the fund pool, becoming a liquidity supplier, and charging fees generated by exchange transactions of the designated fund pool as income.
CandySwap charges a 0.3% fee on every trade conducted directly with liquidity providers. As the trading volume of the liquidity pool increases, fee income will also increase. As a liquidity provider, by continuously providing liquidity and attracting more traders, you can increase trading volume and fee income, thereby obtaining higher returns. If you want to obtain higher returns, you need to pay attention to the daily trading volume of the capital pool, the depth of the capital pool, and many market environmental factors.
In order to promote the vigorous development of the ecology on the Qitmeer chain and provide users with a better trading experience and richer trading depth, the Qitmeer team decided to launch an incentive plan. Users who add MEER/USDT liquidity during the event can enjoy up to 120 % annualized return. The launch of this incentive program will provide users with more earning opportunities and further strengthen the development of the Qitmeer on-chain ecosystem.
How to improve the efficiency of fund utilization
💰🧰What does the APR of liquidity provide income mean? APR refers to the annualized return on the funds provided as liquidity on decentralized exchanges, without considering compounding (reinvesting profits). Therefore, APR can be viewed as a simplified method for calculating the annualized return on investment.
To understand better, let’s take an example. Assume that in CandySwap’s MEER/USDT liquidity pool, you provide 100 MEER and 20 USDT, for a total of 40 USDT liquidity. According to the APR of MEER/USDT liquidity provision shown in the figure below is 3.22%, we can calculate that if you lock 100 MEER + 20 USDT in the pool for exactly one year, without considering impermanent losses, you can earn 1.288 USDT Interest. Therefore, your investment should now total 42.212 USDT, consisting of 40 USDT principal and 1.288 USDT accrued interest (based on 3.22% APR).
Therefore, when choosing a liquidity pool, we can focus on those that offer a high annualized rate of return (APR), and by choosing a liquidity pool with a high APR, we can get a better yield return while maintaining liquidity provision. However, when choosing a liquidity pool, we also need to consider other factors in order to find the most suitable liquidity pool for us.
