1EX enables users to contribute liquidity to the platform, earning a share of the trading fees generated from the pool. This section explores the various aspects of liquidity provision on 1EX.
Creating a New Pool
To create a new pool, users must select the tokens they wish to provide as liquidity and specify the desired fee level (0.01%, 0.05%, 0.3%, or 1%). A new pool can only be created if it does not already exist with the same token pair and fee level. If a pool with the specified parameters has not been created by another user, the system will generate a new pool. This ensures that each unique combination of token pairs and fee levels has only one corresponding pool on the 1EX platform.
Investing in Existing Pools
Users can also add liquidity to existing pools by selecting the desired pool and depositing the required tokens. The user's share of the pool and potential rewards will be determined by their contribution.
1EX offers various tools to manage liquidity positions, including:
Viewing created positions
Users can access a list of their current positions, displaying essential information such as the pool's assets, fees earned, and the user's share percentage.
Adding liquidity to existing positions
Users can increase their stake in a pool by depositing additional tokens, which may result in a higher share of the pool and potential rewards.
Withdrawing fees from positions
Users can collect the fees they have earned from providing liquidity. These fees can be reinvested into the pool or withdrawn to the user's wallet.
Closing positions and withdrawing liquidity
Users can choose to exit a liquidity position by withdrawing their tokens and any remaining fees. The tokens can then be traded, transferred, or used in other liquidity pools.
Liquidity Terminology and Concepts
This section covers key terms and concepts related to liquidity provision on the 1EX platform, helping users to understand the various aspects involved in providing liquidity and managing their positions.
The availability of assets within a liquidity pool, which allows users to efficiently trade between different tokens. Providing liquidity helps maintain a stable and liquid market, facilitating smoother trades and minimizing slippage.
A feature of 1EX that allows liquidity providers to set custom price ranges for their deposits, optimizing their capital efficiency and enabling them to earn higher fees with less capital. Concentrated liquidity reduces the risk of impermanent loss while potentially increasing returns for liquidity providers.
A representation of a liquidity provider's contribution to a liquidity pool. A position is characterized by the range of prices within which the provider's assets are active, the assets deposited, and the associated fees earned.
Position Lower Bound / Upper Bound
The price limits within which a liquidity provider's assets are active in the liquidity pool. By setting the lower and upper bounds, liquidity providers can concentrate their liquidity within specific price ranges, optimizing capital efficiency and potentially earning higher fees.
A smart contract-based liquidity pool containing multiple assets, facilitating trades between users by providing liquidity for a specific trading pair. Pools in 1EX are characterized by the assets they contain and the fee tier associated with them.
An NFT issued to liquidity providers in exchange for depositing assets in a liquidity pool. LP NFTs represent a user's share of the pool and can be redeemed for the underlying assets, along with any earned fees.
The percentage of fees earned by liquidity providers for each completed trade within their specified price range. 1EX offers four fee tiers: 0.01%, 0.05%, 0.3%, and 1%, enabling liquidity providers to choose the most suitable option based on their risk tolerance and desired return.
The temporary loss of value experienced by liquidity providers due to price fluctuations in the assets they have deposited. It is crucial to consider the risk of impermanent loss when providing liquidity.
By understanding these liquidity-related terms and concepts, users can make more informed decisions when providing liquidity on the 1EX platform, optimizing their capital efficiency and managing their positions effectively.