Liquidity Pools
Last updated
Last updated
In GroFi Dex, liquidity is managed through non-fungible positions. By providing liquidity, you'll earn a share of the fees.
Upon adding your token to a Liquidity Pool, you'll receive Liquidity Provider NFT tokens and a portion of the fees.
Liquidity providers now have enhanced control over the price range in which they deploy their liquidity. When adding your token to a Liquidity Pool, you'll create a new non-fungible liquidity position with unique settings. Consequently, liquidity positions are represented as NFTs, which are transferable and signify ownership of the underlying assets as well as the accrued trading fees.
Trading fees are no longer automatically compounded within the position; instead, you can manually claim them on each position's detail page.
You have the flexibility to redeem your funds at any time by removing your liquidity.
Liquidity providers have the option to configure their positions to supply liquidity only when the price falls within a specified range. If the trading price moves beyond this range, the position will become inactive and consist of only one type of token in the pair.
Inactive liquidity positions do not participate in trading or earn any trading fees.
GroFi Dex implements the innovative concept of concentrated liquidity, allowing liquidity providers to concentrate their funds within customizable price ranges, optimizing capital efficiency, reducing impermanent loss and earning more trading fees with the same amount of capital.
Here's an example:
David and Andrew both provided liquidity in U2U/USDT pool with $1,000 USD worth of token assets. The current price of U2U is 5 USDT.
David deposited his liquidity across the entire price range, so investing all of his capital, which amounts to 500 USDT and 100 U2U.
Andrew utilize the new concentrated liquidity feature and created a position with a price range of 2 to 12.5 USDT per U2U (+/- 125%). She deposited 185 USDT and 37 U2U, worth a total of $370. As a result, she now has $630 available to spend elsewhere.
As long as U2U stays within the price range of 2 to 12.5, both David and Andrew will receive the same amount of trading fee rewards, despite Andrew depositing significantly less capital into the liquidity pool.
By providing liquidity, you earn rewards in the form of trading fees whenever users utilize your liquidity pool for swaps.
When a transaction occurs on GroFi Dex, a fee is charged for each swap (hop) within each liquidity pool, with the fee ranging 0.01%, 0.05%, 0.25% and 1% depending on the liquidity pool's fee tier.
To enhance the benefits of being a liquidity provider, you can also utilize your liquidity positions to generate additional yield through , all while continuing to earn trading fee rewards.
