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samvox
@samvox
I realized that many friends do not have enough information about liquidity pools, I have guided you here and if you have any questions, ask When you lock tokens in a liquidity pool, you actually deposit two assets (e.g., Token X and Ethereum) into the pool. However, your profit and loss depend on several factors, especially impermanent loss, which can impact your final earnings. (1/...)
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samvox
@samvox
If the token price increases: Suppose Token X experiences significant growth and its price rises. The Ethereum in the pool will gradually convert into Token X (because traders will deposit Ethereum into the pool while withdrawing Token X). As a result, your holdings of Token X increase, but your Ethereum holdings decrease. If the price increase is substantial, your total assets will be worth less than simply holding the token, due to the impact of impermanent loss. 2/...
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@samvox
If the token price decreases: If Token X loses value, traders will deposit Token X into the pool and withdraw Ethereum. This leads to an increase in the number of Token X you hold, but the total value of your assets decreases. In this scenario, you lose Ethereum and end up holding a larger amount of a less valuable token. Final conclusion: If the token price rises, you may still profit, but not as much as someone who simply held the token, because part of your gains is lost due to conversions within the pool. If the token price falls, you lose more because, in addition to the price drop, you also end up holding more of a depreciating asset. For this reason, liquidity pools are better suited for those looking to earn transaction fees rather than those expecting significant price fluctuations. If the token is highly volatile, simply holding it is usually more profitable.
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