How You Make Money From LPs

Liquidity Pools are everywhere. What are they and how are people making money from them. They are actually a lot of less complicated than you think. I remember how daunting it seemed at first when I was playing around with them but you will get the handle of it fast. A LP (liquidity pool) is a pool that you fill up with two coins so that people can swap between them. For example a eth-enj pool would be filled equally with ethereum and enjin coins and people could swap between them whenever they wanted to. This gives people the freedom to trade between any coins on the same chain as long as their is a pool set up. But it is up to coin holders to fill these pools.

A Pool Is Filled

Let's start by covering how these pools are made. You need to pick an ethereum or tron coin. I think these are the only two chains with swapping right now but there might be more. Once you pick that coin you need to pair that coin with another coin on the same network. It can be any other coin on that network but since you want volume you will probably pick the main coin like ethereum. So now you have an eth coin paired with another coin. You will need the equal amount of both coins in order to fill the pool. This is important it has to be the same value in $. So if one ethereum was worth 100 of the other coin then you will need 100 for each ethereum you put in.

Now you have a pool. What this allows is anyone to swap one of the coins for the other. This also allows other people to add to the pool with their own coins and make the pool even larger. This can bring attention to a coin or a project if a lot of people add to the pool.

But What In It For Me?

You might be asking why would I want to put my coins in a pool. Well that's where the fees come in. Whenever someone uses a pool that you having liquidity they need to be a fee for the transfer. That fee is then split by everyone who has coins in the pool. The more coins you have in the pool the higher your percentage you will receive from the pool. This is why you want to get in early as the lower the total pool the more fees you can get. You don't get paid directly from the fees instead the amount of your coins goes up that is in the pool. You can take them out whenever you are ready.

Why Is This A Big Deal

Since you can set up a pair between any two coins this means that you can now get a return on any coin that you hodl. Think about that, all coins are now APR coins. This means even in bear markets you can keep staking your coins and building while the market is in red. If it is a coin you are going to hold anyway and you trust the site that is running the pool it only makes sense to leave it in a pool and pair it with another coin you don't mind holding and get some returns while you wait for the pool to return.

This is ground-breaking stuff. But like any new thing there a potholes and scams so please do your research and be careful. But I do think this is tech that is here to stay.