You will acquire Liquidity Provider (LP) tokens when you add your token to a liquidity pool and get a portion of the fees.
For instance, you would receive SUI-USD tokens if you deposited SUI and USD into a Liquidity Pool.
Your share of the SUI-USD Liquidity Pool is represented by the quantity of LP tokens you are given.
You can also remove your liquidity at any time to claim your funds.
When others use your liquidity pool, people who provide liquidity will receive a reward in the form of trading commissions.
Every time a trader uses Araya Finance, they are charged a fee of 0.3%, of which 0.25% goes toward the Liquidity Pool of the swap pair they used.
- There are 10 LP tokens representing 10 USD and 10 SUI tokens.
- 1 LP token = 1 USD + 1 SUI
- Someone trades 10 USD for 10 SUI.
- Someone else trades 10 SUI for 10 USD.
- The SUI-USD liquidity pool now has 10.025 SUI and 10.025 USD.
- Each LP token is now worth 1.00025 SUI + 1.00025 USD.
Providing liquidity carries risk because you could endure impermanent loss.