Liquidity Providers
What does it mean to provide liquidity?
Providing liquidity on THORChain creates an opportunity for holders of stagnant assets (e.g. BTC, ETH, BNB) to earn a return or yield on their asset. Traditionally, with a CEX or 0x style exchange, trades require an order book of bids/asks (buys/sells) at a specific price, because if an investor wants to trade one asset for another, you need a buyer and a seller. Decentralised exchanges like UniSwap and THORChain utilise liquidity pools to provide more fluid access to trades. Liquidity pools are the way decentralised exchanges maintain a reservoir of assets, enabling buyers and sellers to exchange assets on demand. Liquidity Providers are therefore those network participants who deposit their assets into liquidity pools in exchange for a share of the trading fees generated by the trading of buyers and sellers.
What assets can you swap and provide liquidity for?
Current Chains — BTC, ETH, LTC, BCH, DOGE, Cosmos, AVAX, BSC
Native gas/base assets on each chain
See full list at https://runescan.io/pools or https://thorchain.net/#/pools
Can I stake RUNE?
Not quite. “Providing liquidity” in THORChain is not the same thing as staking because even if you provide only 1 asset (asymmetrically add), THORChain will automatically be separated into 2 equal parts: 50% Assets and 50% Rune. You will always have exposure to both assets.
Is there a lockup period if I provide Liquidity?
There is no minimum or maximum time or amount. Join and leave whenever you wish. There is however a required confirmation time before THORChain credits you with liquidity when adding or swapping to protect against Reorgs. Wait time is based on:
Total Asset amount (in a specific block of a specific blockchain)
Per block reward of the chain
Block time Required confirmations = Total Asset Amount (in a specific block of a specific blockchain) divided by the chain's per block reward Then that is multiplied by block time to get the approx "wait time". See Confirmation-Counting.
➜ THORChain - Wait Times and Fees Explained!
Will I have Impermanent Loss Protection if I provide liquidity in THORChain?
No. IL protection has ended on THORChain.
Asymmetrical / Symmetrical FAQs
I entered asymmetrically but received less than anticipated
Yes, because when you pool asymmetrically your asset is swapped into 50% rune and 50% asset. When swapping you are subject to slippage and fees. There are 2 types charged on asymmetrical deposits/withdrawals:
The on-chain deposit transaction fee (inbound tx)
The liquidity fee as a function of slip
Upon withdrawal, there will also be a transaction fee (outbound tx)
Are there slippage fees for symmetrical deposits?
No, there is only the deposit transaction fee.
What ways can I withdraw my asymmetrical deposit?
If you deposit asymmetrically you can ONLY withdraw asymmetrically, to the same asset/address that was used for deposits.
What ways can I withdraw my symmetrical deposit?
You can withdraw your symmetrical deposit both asymmetrically (in either asset) and symmetrically.
Will all ERC20 assets be supported and listed on THORChain by default?
No. Only short tail assets with high MarketCap, good velocity and economic activity would have chances to win liquidity competition to get listed.
Adding and Removing Liquidity
Entering and Leaving a Pool
To deposit assets on THORChain, you need a compatible wallet with your assets connected to one of the many User Interfaces. Liquidity providers can add liquidity to any of the active or pending pools. There is no minimum deposit amount, however, your deposit will have to cover the deposit and later a withdrawal fee costs. The ability to manage and withdraw assets is completely non-custodial and does not require any KYC or permission process. Only the original depositor has the ability to withdraw them (based on the address used to deposit the assets). Note, every time you add liquidity, Impermanent Loss Protection time resets.
While Symmetrically additions are recommended, Asymmetrical additions are supported, below are the rules:
If you add symmetrically first;
You will be able to add asymmetrically with RUNE later
You will be able to add asymmetrically with ASSET later but it would create a new LP position
You will be able to add symmetrically later
If you add asymmetrically with ASSET first;
You will be able to add asymmetrically with RUNE later but it would create a new LP position
You will be able to add asymmetrically with ASSET later
You will be able to add symmetrically later but it would create a new LP position
If you add asymmetrically with RUNE first;
You will be able to add asymmetrically with RUNE later
You will be able to add asymmetrically with ASSET later but it would create a new LP position
You will not be able to add symmetrically later
Withdrawing Liquidity
Liquidity providers can withdraw their assets at any time and without any cooldown period, aside from the confirmation time. The network processes their request and the liquidity provider receives their ownership percentage of the pool along with the assets they’ve earned. Fees do apply when withdrawing, see Outbound Fee.
How to track your position
You can see your position if you connect to THORChain via an Interface you can use THORYield.
There are four factors affecting returns:
Proportion of transaction volume to pool depth — If there is high volume compared to the depth of the pool then there will be higher rewards available to liquidity providers. If there is low volume compared to the depth of the pool then there will be lower rewards available.
Share of the pool — If you have a large share of the pool, you’ll earn higher returns. If a liquidity provider has 1% of a pool they receive 1% of the rewards for that pool.
Fee size — fees are determined by the underlying blockchain and the rewards from fees are proportional to the fees charged. A chain with higher fees will generate higher rewards for liquidity providers.
*Of significant note is that this mechanism of providing liquidity into the protocol; creates an opportunity for holders of non-yield generating assets (e.g. BTC, ETH) to earn a return on their investments.
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