Providing Liquidity Overview
Last updated
Last updated
In a DonutSwap decentralized exchange (DEX), tokens are pooled together in smart contracts, creating liquidity pools. These pools enable trading of digital assets through an automated market maker (AMM) system, eliminating the need for traditional buyer-seller markets.
Earning trading fees is the primary benefit of adding liquidity to these pools. However, for additional rewards like farming emissions, creating a staked position non-fungible token (spNFT) is necessary. This can be done even without first contributing to the liquidity pool (LP).
Take the ETH/USDC pair as an example: When you add liquidity to this pair, you receive ETH/USDC LP tokens, signifying your share in the pool. These LP tokens automatically accrue a portion of transaction fees from trades involving the ETH/USDC pair.
Furthermore, wrapping your LP token into an spNFT not only enhances the utility of your holdings but also enables you to earn extra rewards, in addition to the trading fee income.
Liquidity providers are rewarded with a portion of each transaction fee.
By converting the LP token into a specialized NFT, known as spNFT, you establish a staked position. This staked position is capable of producing extra yields from both the incentive pair and the nitro pool.
The spNFT represents a wrapped version of either V2 or V3 LP tokens.
Select spNFT on the liquidity tab to bundle assets without having to turn them into LPs first.