In addition to Trading tokens, ShadowSwap users can also add liquidity to the DEX itself by contributing equal amounts of two tokens (a token pair) to create liquidity provider (LP) tokens.
Shadowswap charges a 0.3% fee for all trades, of which 0.20% is added to the liquidity pool of the token pair that was traded on.
A liquidity pool (LP) is a pool of two tokens, e.g. CORE and SHDW tokens. This pool is what allows users to exchange between the two tokens automatically.
Users can earn a share of the trading fees by depositing a pair of tokens into the LP (also known as "adding liquidity"). Users will receive an LP token, representing their share of the LP.
Liquidity pools are created by pairing together two different crypto tokens and depositing them into a smart contract. ShadowSwap currently uses the constant product formula for our automated market market (AMM) and liquidity pools, ensuring that assets are always deposited in an equal 50/50 split based on the current value of those assets and that all liquidity pools only ever have two tokens in them.
Liquidity pools are often referred to as "trading pairs," because you are combining two tokens to create a liquidity provider token. A liquidity pool of two assets allows you to swap (trade) between those two tokens.
Additionally, if you want to dig deeper on the math behind our AMM (the constant product formula) check out Binance's walkthrough here.
What Is an Automated Market Maker (AMM)? | Binance Academy
Pool APR is the yield you accrue by adding liquidity to a Pool. You earn 0.25% of all trades on this pair proportional to your share of the pool. Fees are added to the pool, accrue in real-time, and can be claimed when you withdraw your Liquidity.
<aside> 💡 Your share of the Trading Fees will be accrued in real-time and will be paid on top of your existing position when you exit the Liquidity Pool.
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Providing liquidity is not without risk, as you may be exposed to impermanent loss (IL).
Simply put, the impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.
If the prices of the two tokens revert back to the same prices when you added liquidity, you won't suffer any IL.
Providing Liquidity to a Pool does come with the risk of Impermanent Loss.