How Liquidity Providing works
As liquidity providers, we make yield – earning fees from transactions on the DeFi platform on which we provide liquidity.
The transaction fees are distributed proportionally to all the liquidity providers in the pool, so the more crypto assets you stake, the more fees you’ll earn.
We use different DeFi platforms to provide liquidity, including decentralized exchanges, cross-chain bridges, and yield aggregators: Uniswap, Aave, 1Inch, сBridge.
Our team constantly analyzes the market and can move funds between different pools and services to generate the highest returns and manage risks.
Risks and how we manage them
Smart contract failure:
When supplying liquidity, a provider locks up their assets in a smart contract, which is always vulnerable to cyberattacks and fails if compromised. Despite massive improvements in the last few years, smart contracts have yet to become secure cryptocurrency tools.
We use platforms that have passed security audits and are less susceptible to vulnerabilities.
Impermanent loss:
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
When we provide liquidity to pools of two tokens, we hedge a position on the futures market.