Liquidity Providing
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A liquidity provider makes his funds available to increase the amount of tokens in a pool, earning 'LP tokens' in proportion to the amount of assets he puts into the pool. Each time a transaction is made, 0.22% of the transaction fee is distributed among all liquidity providers.
Terraport pools keep their reserves balanced according to the following equation:
Rx x Ry = K
Rx and Ry are the reserves of token X and token Y, respectively, and K is a constant. Each asset trade will change the values of Rx and Ry, but only in ways that satisfy this equation. If a trader wishes to sell ∆x amount of X tokens, he will receive ∆y amount of Y tokens such that:
(Rx+∆x)(Ry-∆Y) = K
To add liquidity, liquidity providers deposit X tokens and Y tokens at a ratio that matches the current price (Rx / Ry). The additional liquidity increases the value of k. Intuitively, with more liquidity in reserve, traders will receive more output (∆y) for a given input (∆x). Thus, higher liquidity reduces trade slippage.
The liquidity pool will also allow to stake LP tokens to earn $TERRA tokens in the “Farms.”
Go to the "Trade" page.
Click the “Provide” button on the Swap Tab.
Choose the tokens you want to add to the liquidity pool, enter an amount on the first section, the other will be calculated and filled in automatically (you must have the right amount of both tokens in your wallet).
Make sure you have enough $LUNC to pay the gas fees and click "PROVIDE".
You will see your new liquidity position on the Trade section.
After depositing a pair of tokens into a liquidity pool, you will receive the LP tokens as a “receipt”.
LP Tokens indicate your share within the pool and allow you to get your deposit back, plus any interest earned.
Go to the Trade page.
Click the “Withdraw” button in the Swap Tab.
Enter the amount of LP tokens you want to withdraw.
Make sure you have enough $LUNC to pay the gas fees and click "WITHDRAW".
