Liquidity Pools
When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and share in the fees.
LP Tokens
As an example, if you deposited BabyDoge and BNB into a Liquidity Pool, you'd receive BabyDoge-BNB LP tokens.
The number of LP tokens you receive represents your portion of the BabyDoge-BNB Liquidity Pool.
You can also redeem your funds at any time by removing your liquidity.
Liquidity Providers earn swap fees
Providing liquidity gives you a reward in the form of swap fees when people use your liquidity pool.
Whenever someone swaps on BabyDogeSwap, they pay a 0.3% fee, **of which 0.2% **is added to the Liquidity Pool of the swap pair they traded on.
For example:
There are 10 LP tokens representing 10 BabyDoge and 10 BNB tokens.
1 LP token = 1 BabyDoge + 1 BNB
Someone trades 10 BabyDoge for 10 BNB.
Someone else trades 10 BNB for 10 BabyDoge.
The Baby/BNB liquidity pool now has 10.040 BabyDoge and 10.040 BNB.
Each LP token is now worth 1.00040 BabyDoge + 1.00040 BNB.
To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh yield on the BabyDoge Farms, while still earning your 0.2% swap fee reward.
Impermanent Loss
Providing liquidity is not without risk, as you may be exposed to impermanent loss.