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 BOW-LP.
As an example, if you deposited BOW and CORE into a liquidity pool, you would receive BOW-CORE LP tokens.
The number of LP tokens you receive represents your portion of the BOW-CORE 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 ArcherSwap, 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 BOW and 10 CORE tokens.
1 LP token = 1 BOW + 1 CORE
Someone trades 10 BOW for 10 CORE
Someone else trades 10 CORE for 10 BOW.
The BOW/CORE liquidity pool now has 10.010 BOW and 10.010 CORE.
Each LP token is now worth 1.00010 BOW+ 1.00010 CORE.
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.