Decentralized exchanges (DEXs) rely on automated market makers (AMMs) to power their swap functionalities. An AMM uses liquidity pools to automatically facilitate direct peer-to-peer trades. Liquidity pools consist of equal value of the two tokens in that trading pair. After each trade, the pool itself is automatically rebalanced, and the price per token is updated. Providing liquidity is a moderately advanced feature and is not recommended for beginner users.
Providing liquidity is a moderately advanced feature and is not recommended for beginner users.
On ShibaSwap, users can provide liquidity using the Dig function and receive rewards for their participation as a Liquidity Provider (LP). To add liquidity to ShibaSwap and start earning rewards, simply navigate from the homepage to the Dig page.
From here, users will be able to create their own liquidity pair or provide additional liqidity to any existing pool. Once an option is selected, you will be presented with a screen that functions almost identically to the Swap page. To add liquidity, simply select the two tokens you wish to add into liquidity and the amount. In this example, we will be adding liquidity to the SHIB-WETH pool.
Base token: This is where you select your base token for your liquidity pair. Selecting ETH will automatically wrap it into WETH for the pool so you do not need to wrap it yourself.
Second token: This is where you select the other token for your liquidity pair. This can be anything you like, meaning users can create their own custom pools at any time. To add to an existing pair, make sure you are importing the correct base token and second token!
Pool info: This is where information on the pool will be populated, including pool value, your share of the pool, and the comparative price of each token.
Confirmation button: Once you are ready, select this to start the transaction in your wallet.
Once the transaction is complete, you will be awarded SSLP tokens representing your share of the liquidity pool. You are entitled to your proportional share of the pool which may change over time, potentially exposing the end user to impermanent loss. To remove your liquidity, simply return to the Dig page, connect your wallet, and remove your liquidity by clicking the pair in the menu.
Don't see a pool you joined? Click the Import It button at the bottom of the page to import your SSLP tokens to manage your liquidity.
In most cases, simply holding the SSLP tokens will allow the Liquidity Provider to earn their share of the fees generated by that trading pair. However, ShibaSwap takes this further and allows Liquidity Providers to receive reward tokens as an additional incentive. Rewards for providing liquidity are covered in detail on the Woof page of this wiki immediately following this page. Click the next page button below to learn about how to earn BONE rewards for providing liquidity.