What does adding liquidity do and why would someone do it?
Hi, adding liquidity makes you become a Liquidity provider. You will earn trading fees of all transactions with that trading pair.
Also see: pDEX: The first privacy-protecting decentralized exchange
Thanks for the explanation, that is very helpful.
I am now wondering if leaving more coin in the node increases the amount of liquidity that I am contributing or if it can only be done through the wallet transactions?
I believe that has to be done through pDEX. If you leave your PRV commission in your node that doesn’t add to the liquidity pool.
I wanted to edit this to say the fees that you earn in the pDEX pool are kept in the liquidity pool until you withdraw your liquidity. That helps to keep more funds around for others to trade with. The funds you earn from staking a node are essentially appended to your wallet just not in your wallet until you specify to have the funds transferred to your wallet. Unfortunately, these funds do not add to the general pool in pDEX. @Mike_Despo and @Jamie please correct me if I’m wrong.
Yes, @Rick_Shah is right about that. You would need to add liquidity through the pDEX.
If you have anymore questions, feel free to ask!
Liquidity relates to the amount of coins available in the pool of a trading pair on pDEX
Coins that are in your wallet or “on the Node” have no influence, or link to that.
This is a follow to the liquidity questions I have had. How and where can I see the trading fees I collect after adding liquidity? Is there a rate based on amount added?
Also, is there any risk associated with adding liquidity?
Trading fees are added to the pool. Each liquidator is rewarded with a share of the total fees equal to the share of the amount you invested.
For example, a trading pool has 100 pBTC and 1 pUSDT
You add 50 pBTC and 0.5 pUSDT liquidity.
Now you own 1/3 of the total pool and therefore receive 1/3 of the total collected trading fees in that pool.
This reward (your part of the fees) becomes available to you when you remove the liquidity you added.
I am not aware of statistics on the number of transactions and transaction fees, per pool.
There is no risk of losing the coins you added. Your ROI depends on the number of transactions and the fees paid, that makes ROI unpredictable, which could be looked upon as a risk.
That’s all I needed to know! Thank you, I appreciate it. I’ll be adding as much as I can then.
Awesome! Good to have you in the pool! Also, do update us on what kinds of returns you seen on your liquidity as I’m sure many will be interested.
Hi, I’m not sure I understand how adding liquidity works. I just added 143 PRV and 40.000 RSR (I think I’m the only one in the pool). After half day it says the Output is 368 PRV and 15.000 RSR, which doesn’t make much sense. If I look just dollar value, it seems I’m 50% up?!
The two sides of the equation flux as liquidity gets tapped.
I have provided liquidity for a month now and have seen my stakes flux a lot with market conditions. It could be an issue for some if they flick in and out at the wrong times. Seems you have landed on a right time lol.
I just roll the profits in and let it ride.
I just find it very confusing. When I stake I know exactly how much I can earn, with liquidity, it feels like a lottery
Hey @jonny. I would say congratulation to you & your sudden luck because some money dropped out of someone’s wallet and fell in your wallet out of the blue . Decentralized spirit means everyone should be responsible for their funds, so I think it’s also okay for the one who has lost funds as well. It’s a learned lesson for him/her. Let me explain:
There was 1 big trade ‘use PRV to buy RSR’ on the pair PRV <> pRSR taking place on May 27. The trader put in 200 PRV. The liquidity pools of PRV <> pRSR back in that time (168 PRV & 34,000 PRV) were small compared to the number of PRV the trader put in, leading the ridiculously high price of RSR he/she had to encounter. He/she bought RSR at the price 1 pRSR = 0.01 PRV, or 1 RSR = $0.009 (it’s 3 times the current market price of RSR).
Overall, the trader lost 200 PRV and only got back 18,430 RSR. On the other side, you, the only liquidity provider of the pair, earned this 200 PRV and lost 18,340 RSR (compared to the liquidity pool sizes at the time before the trade took place).
Congratulation to you again but I hope that this kind of luck would not occur ever again because someone will lose their money by the time you get the fortune
Thank you Jason, that’s very helpful. My big question is when it comes to liquidity pools, do I have to manually keep the pair in right balance (talking the dollar value)?
If pair is out of proportions, does it mean that somebody can get PRV very cheap, using RSR for purchase, like in this particular case?
Maybe it’s a dumb question, but Im still trying to figure out how it all works.