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Liquidity pools allow you to provide liquidity by adding your tokens to liquidity pools.
When you add your token to a liquidity pool, you will receive Liquidity Pool (LP) tokens called BLT-LP.
As an example, if you deposited BLT and USDT into a liquidity pool, you would receive BLT-USDT LP tokens.
The number of LP tokens you receive represents your portion of the BLT-USDT liquidity pool.
You can also redeem your funds at any time by removing your liquidity.
Providing liquidity is not without risk, as you may be exposed to impermanent loss.
It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. For example, whenever someone trades Bulletswap, the trader pays a 0.2% fee, of which 0.10% is added to the liquidity pool of the swap pair they traded on.
- 10 LP tokens are representing 10 BLT and 10 USDT
- 1 LP token = 1 BLT + 1 USDT
- Someone trades 10 BLT for 10 USDT
- Someone else trades 10 USDT for 10 BLT
- The BLT/USDT liquidity pool now has 10.010 and 10.010 USDT
- Each LP token is now worth 1.00010 BLT + 1.00010 USDT
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 Yield Farms while still earning your 0.10% trading fee reward.