What is LP Farming?
LP farming, or Liquidity Provider farming, is a way for users to earn rewards by staking their Liquidity Provider (LP) tokens. These tokens are received when users provide liquidity to trading pools on BeeDex. By participating in LP farming, users earn rewards in the form of BEE tokens, while also supporting the decentralized exchange by maintaining its liquidity.
Key Terms Explained
1. Pool
A pool refers to the trading pair for which liquidity is provided, such as WLOOP-BEE-LP.
Users provide equal values of two tokens (e.g., WLOOP and BEE) to create LP tokens, which represent their share in the pool.
2. APR (Annual Percentage Rate)
The APR reflects the potential annual returns from farming, expressed as a percentage. It includes:
Rewards earned per block.
Fees collected from trades within the pool.
APR will vary based on the pool's performance, the total value locked (TVL), and the number of participants.
3. Block Rewards
These are rewards distributed to LP farmers for every block created on the blockchain.
On BeeDex, the block rewards for the example pool are 0.05 BEE per block, shared proportionally among all stakers.
4. Deposit Fee
When depositing LP tokens into a farming pool, a 1% deposit fee is charged.
Example: For 100 LP tokens deposited, 1 LP token is taken as a fee, and 99 tokens are staked.
5. Earn
This indicates the type of token distributed as farming rewards. For example, farming in the WLOOP-BEE-LP pool will earn you BEE tokens.
6. Total Pool LP
Reflects the total amount of LP tokens staked in the pool by all participants. A higher number indicates strong community participation.
How is APR Calculated?
APR in LP farms is calculated based on several factors:
Block Rewards
This refers to the total rewards distributed per block and the current token price (e.g., BEE price).
For example, if the pool generates 0.05 BEE per block, the total daily rewards are calculated by multiplying the block rewards by the number of blocks per day.
Total Value Locked (TVL)
TVL represents the total value of all staked LP tokens in the pool. It fluctuates based on the prices of the paired tokens (e.g., WLOOP and BEE).
A higher TVL means more participants, resulting in a lower APR for individual stakers since rewards are shared across more people.
Token Prices
The price of the rewards token (BEE) and the LP tokens in the pool significantly impacts APR. An increase in token prices boosts the APR value.
Formula for APR
APR= (Daily Rewards in BEE / Total Staked Value in BEE)*365*100
Where:
Daily Rewards in USD is the total value of block rewards per day.
Total Staked Value in USD is the combined value of all LP tokens in the pool.
How to Participate in LP Farming
Step 1: Add Liquidity
Navigate to the Liquidity Page on BeeDex.
Pair tokens like WLOOP and BEE to create LP tokens (e.g., WLOOP-BEE-LP).
These LP tokens represent your contribution to the pool and your share of its trading fees.
Step 2: Deposit LP Tokens
Go to the Farm section and select your desired pool.
Click Add to deposit your LP tokens into the farming pool.
Note that a 1% deposit fee applies to all deposits.
Step 3: Harvest Your Rewards
Rewards in the form of BEE tokens are distributed for every block.
You can harvest these rewards at any time by clicking Harvest.
Step 4: Withdraw LP Tokens
If you want to exit farming, click Unstake to withdraw your staked LP tokens.
Withdrawn LP tokens can be returned to the liquidity pool or exchanged for the original assets (e.g., WLOOP and BEE).
Importance of LP Farming for the Community
1. Support for the BeeDex Ecosystem
By providing liquidity, farmers ensure smooth trading operations on BeeDex. This enhances the trading experience for all users by minimizing slippage and increasing market depth.
2. Passive Income Opportunity
LP farming allows you to earn passive income through:
Farming Rewards: Regular distribution of BEE tokens.
Trading Fees: Share of fees from trades executed in the liquidity pool.
3. Strengthens the Value of BEE
By encouraging farming and liquidity provision, BeeDex enhances the utility and demand for BEE tokens, benefiting the community as a whole.
4. Encourages Decentralization
LP farming contributes to the decentralization of BeeDex by distributing liquidity control among a large number of users, rather than concentrating it in the hands of a few entities.
Advantages of LP Farming on BeeDex
Earn Additional Rewards:
Gain rewards in BEE tokens for staking LP tokens.
Stack your earnings by compounding rewards or reinvesting into the pools.
Fee Sharing:
Earn a portion of the trading fees generated from the liquidity pool, boosting your overall yield.
Community Growth:
Active participation in LP farming builds a stronger, more sustainable BeeDex community by encouraging liquidity and engagement.
Flexibility:
Withdraw or harvest rewards anytime, giving you complete control over your staked assets.
Low-Risk Asset Pairing:
Farming with stable and liquid asset pairs (e.g., WLOOP and BEE) minimizes risks associated with price fluctuations.
Accessible for All:
Easy-to-use interface and transparent farming details make BeeDex accessible for both beginners and advanced users.
Why LP Farming Matters
LP farming is the backbone of decentralized exchanges like BeeDex. It incentivizes community members to actively contribute to the platform’s liquidity, ensuring:
Lower slippage for traders.
Consistent rewards for liquidity providers.
A healthy, decentralized ecosystem that benefits all participants.
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