💸Liquidity Provider
LP: Short for Liquidity Provider, refers to users or institutions that provide liquidity to decentralized exchanges (DEX). Liquidity providers contribute a certain amount of assets (such as tokens, stablecoins, etc.) to the liquidity pool of the exchange to support trading activities.
Roles of LPs:
Provide Liquidity: LPs deposit their assets into a liquidity pool of a trading pair for other users to trade. For more details, see: Manage Liquidity
Earn Trading Fees: In return, liquidity providers receive a share of the transaction fees proportional to their provided liquidity.
LP Reward Rules:
Transaction Fees
Each trade incurs a 0.3% fee, with no additional gas costs. For more details, see: Fee Structure
Fee Distribution
Liquidity providers receive 50% of Swap fees, based on their share of the pool. For example, if you contribute 10% of the total liquidity, your fee reward will be 10% × 50% of the distributed fees.
Liquidity Pool
Each liquidity pool consists of two tokens, similar to Uniswap V2 (e.g., USDT and KASMO). Liquidity providers must provide both tokens simultaneously, following the current market ratio.
Reward Distribution
Transaction fees are not distributed immediately but are instead added to the liquidity pool, increasing the total pool value. Your reward is reflected in LP tokens, which represent your share in the liquidity pool. When you withdraw liquidity, LP tokens can be redeemed for the two tokens you initially deposited into the pool, plus the transaction fees earned.
Special Notes
Hibit operates a hybrid trading engine, combining both Swap and Orderbook matching mechanisms. Only transaction fees generated from Swap trades are distributed to LPs based on their liquidity share. In orderbook transactions, LPs do not directly receive transaction fee rewards.
Liquidity Rewards
Liquidity providers can earn trading fees on Hibit through the liquidity they supply. The rewards are proportional to the size of the liquidity pool and the frequency of trades. If all trades are executed via Swap, the entire 0.3% transaction fee is distributed to liquidity providers.
LP Risk – Impermanent Loss
Similar to Uniswap V2, Hibit liquidity providers face the risk of Impermanent Loss. If the price of the two tokens in the pool changes significantly, your share of the liquidity pool may decrease, leading to a potential loss, especially during periods of high price volatility.
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