This is the first series of guides that will show you how to earn from DeFi and this is the part 2 of the series. There are many ways to earn from trading digital assets, such as day trading on the future contract, arbitrage on different platforms, holding digital assets and many more. Neukind Hong Kong focuses on DeFi and sees much greater potential for DeFi in the future.
This article will focus on the liquidity provider in the DeFi space. For more information about the terms of DeFi and platforms for DeFi please read more about it here.
DeFi is one of the most exciting places in digital assets. Since the low of Uniswap on Sep 17 the price went 9600% up to $41 a token. There are many more different tokens and projects that are just as exciting as the Uniswap platform. We hope through these articles people would be more active on the DeFi protocol and more people would be interested in DeFi like how we are excited with the DeFi space. This article will focus on lending, one of the first functions on DeFi and yet still profitable with lending on DeFi.
To understand why liquidity is important for decentralized exchanges (“DEX”) we must talk about liquidity provider and liquidity pool.
A liquidity provider (“LP”) refers to people who will send a smart contract associated with a pair of tokens such as Ethereum and USDT. These tokens will go into the liquidity pool and when people exchange between the two pairs the liquidity provider will be earning a fee as exchange.
In today’s writing there are a total of $78B in liquidity. Liquidity pools are the backbone of many decentralized exchanges, such as Uniswap. Without LP decentralized exchanges are not able to provide people trades. On top of that with Application Programming Interface (“API”) the DEX are able to determine the price of a certain token making it possible for people to use DEX to trade.
How To Be A Liquidity Provider?
To provide liquidity to an automated market maker and start earning a passive income with LP. The first step to becoming a LP is to have a pair you like on an exchange. Like USDT and USDC have the proportion in 50% and 50% and you are ready to provide on the AMM. For the purpose of this demonstration visit https://app.uniswap.org/#/swap and connect to your Metamask wallet.
Next step is to go to the pool tab and click on the New Position button. After entering the pair that you want to and select the fee tier you are ready to earn with being a LP. There are other websites that will cover the APY for different pairs.
Next we will be talking about staking so make sure to follow Neukind Hong Kong for more updates.
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