When you add liquidity to the pool, you will get LP tokens. A transaction fee of 0.2% or 0.1% (BUSD-USDT, USDC-USDT, and DAI-USDT pairs) will be charged when someone makes a token swap:
- 0.15% will be returned to liquidity providers as a fee reward out of 0.2%
- 0.075% will be returned to liquidity providers as a fee reward out of 0.1%
The liquidity pool will also allow you to stake your LP tokens to earn BSW tokens in the “Farms.” Hence, apart from earning income from token swap transactions, a user can stake LP tokens and earn BSW tokens.
For instance, if you add liquidity to $BNB / $BUSD, you will receive BNB-BUSD LP tokens. The number of LP tokens you receive represents your share in BNB-BUSD liquidity pool. You can always request the withdrawal of your funds by removing your liquidity.
Please note that when adding liquidity, you will need to have a sufficient amount of each token. Let’s say you want to add the following liquidity: 1 BNB / 308 BUSD. If you have less than 308 BUSD or less than 1 BNB, you will not be able to proceed. You need to have a sufficient amount of each token.
Liquidity pools pave the way for LPs to earn interest on their digital assets. By locking the tokens into a smart contract, users can earn a portion of the fees that are generated from trading activity in the pool.
The size of a user's share in the pool depends on how much of the underlying asset they have supplied. So, if a pool has $100 worth of assets and a user has supplied 10% of those assets, then that user would own 10% of the pool and earn 10% of the distributed rewards.
Fees you receive as a liquidity provider are added to your allocation in the liquidity pool.
In the WBNB/BUSD pair above, we see these values:
Liquidity: $31.46M Volume 7D: $19.06M
Use the 7D volume to calculate the fee share of liquidity providers in the pool (based on the 0.15% trading fee structure): $19,060,000 (7D volume)*0.15/100 = $28,590 (7D LP Reward fees)Next, use that fee share to estimate the projected yearly fees earned by the pool (based on the current 7D volume): $28,590 (7D LP Reward fees)*52.17 (number of weeks per year) = $1,491,540 (yearly LP Reward fees)We can now use the yearly fees to calculate the LP rewards APR: ($1,491,540/$31,460,000) (yearly fees / liquidity)*100 = 4,741068023% (LP reward APR)