Liquidity Provider in De-Fi....
Everybody wants profits! It would be very difficult to find a person, who would be willing to be a part of a loss, especially in crypto. Keeping that in mind the few ways which have been gaining a lot of attention in recent times are providing liquidity in a LP pool of a pair in different de-fi exchanges. But from what is seen, there are some pros and cons to almost all of them. Let me share two of the process which I went through and the end result of those.
Providing Liquidity :
Every defi exchanges runs on own liquidity pools. Where the users/company provides liquidity to their specific pairs of tokens. The ratio of the distribution of these pairs are made in 1:1 ratio. Which precisely means if you provide liquidity for a specific pair (lets say for $1000) in Uniswap, you will need $500 of ETH and the other pair coin worth of $500. For providing liquidity you earn a specific share of fees, earned from that pool and if any additional bonus is provided by that coin authority. Sounds easy money right. But the fact lies behind it.
As easy as it sounds there are several things which can be considered for your assets. For instance there are several types of losses which could eventually affect your portfolio. Imparmanent Loss is one of them. This term refers to the loss that you will face, when the price deflects from any of the coin price which and when you deposited them on the LP pool. Which means if the price of the asset decreases your total value of assets will decrease , thus your portfolio will decrease. But given some proper time your assets may regain its original price, since you will be getting the LP trading fees as rewards.
One of the best way to get into these LP pools, is to find some stable coins which will not affect the portfolio in greater stance. Pros : Some instant profits with large benefits, if you choose the right pools. By which I mean, the APR/APY is quite high in these pools, which gives a decent ROI. Another positive site is, you can unstake those assets at any point you like (the beauty of defi). Cons : Imparmanent Loss is one of those cons. Waiting period to cover up that loss is somehow annoying. But if you are thinking long term, I suppose that is not a big concern. While if you are a coin freak like me than you are going to miss some fun in coin accumulation. You will get it soon ;)
Educate yourself more
Single Pool :
When it comes to staking, single pool staking, is probably the safest way to increase your portfolio. Atleast what I have noticed, if you are not lucky like me and you do not like to bet with your assets, staking your coins is probably the safest and easiest way to increase your portfolio. In my case, lets say I have staked few CAKE coins on pancake swap and for that I am earning a portion of cake everyday. Now I am earning a lot less due to staking only cake token. As I am just staking my coins in a single pool instead of a pair. In here I will not face the impermanent loss but here the growth of my asset will exponentially low compared to those who are providing Liquidity to double pair coins.
So there are pros and cons to almost every step you take in crypto defi space. Which is why it is really essential to make yourself educated before you dive into any financial decisions regarding LP and staking. But even after that there are several ways to take profits from your assets, you just need to figure out a way ;) which is the right way!
Image source : Pancakeswap.finance
Best regards
Rehan
Posted Using LeoFinance Beta