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Liquidity
In addition to swapping tokens, ApeSwap 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.
How Liquidity Pools Work
Liquidity pools are created by pairing together two different crypto tokens and depositing them into a smart contract. ApeSwap 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", as a liquidity pool of two assets allows you to swap (trade) between those two tokens. You can explore the various liquidity pools and liquidity depths of all trading pairs on our info page.
Additionally, if you want to dig deeper on the math behind our AMM (the constant product formula) check out Binance's walk through here.
Creating Liquidity Provider Tokens
A liquidity provider token (aka "LP token") is essentially a receipt that a protocol provides to a user who adds liquidity to a decentralized exchange. ApeSwap allows you to provide liquidity by adding your token pairs to liquidity pools, using equal amounts for each token.
When you add your tokens to a liquidity pool, you will receive APE-LPs - ApeSwap’s native liquidity provider tokens.
For example, if you deposited BANANA and BNB into a liquidity pool, you would receive BANANA-BNB APE-LP tokens.
The number of APE-LP tokens you receive represents your portion of the BANANA-BNB liquidity pool. You can also redeem your funds at any time by removing your liquidity, but please be conscious of Impermanent Loss (as described below).
Liquidity Provider Benefits
There are two main ways that you can earn rewards after adding liquidity. As soon as you create an APE-LP token and hold it in your wallet, you begin collecting trading fees (aka Liquidity Mining). Each transaction that uses the liquidity you're providing takes a small fee, which is split proportionally across all LP Token holders.
ApeSwap also incentivizes liquidity between certain token pairs by creating Yield Farms for the APE-LP tokens that correspond to those token pairs. You can stake your APE-LP tokens in Yield Farms to earn BANANA.
NOTE: Liquidity provider tokens are native to a particular DEX and cannot be used to earn trading fees or staking rewards on other DEXs. Only LP tokens created on ApeSwap (e.g., APE-LPs can be used for liquidity mining on ApeSwap, or in ApeSwap Yield Farms.
Liquidity Mining
Any time someone swaps between a BNB Chain token pair on ApeSwap’s DEX, a 0.20% trading fee is collected.
For trades on BNB Chain: Of the 0.20% trading fee, 0.05% goes to the ApeSwap Treasury, and the remaining 0.15% is distributed proportionally to all holders of the applicable APE-LP token.
For trades on Polygon: Of the 0.20% trading fee, 0.15% goes to the ApeSwap Treasury, and the remaining 0.05% is distributed proportionally to all holders of the applicable APE-LP token.
Collecting these trading fees is a way to passively earn rewards from just holding your APE-LP tokens. Compared to other decentralized exchanges, ApeSwap returns one of the highest percentages of its trading fees back to liquidity providers on BNB Chain!
NOTE: Trading fees are earned on APE-LPs that are held in your wallet AND on those that are staked in Yield Farms. You do not have to unstake APE-LPs from Yield Farms in order to earn trading fees.
Yield Farming
You can also choose to stake your APE-LP tokens in our Yield Farms to earn BANANA rewards. Visit our Yield Farms page to learn more.
Impermanent Loss
Providing liquidity is not without risk, as you may be exposed to impermanent loss. “Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman
Impermanent Loss Explained | Binance Academy
Binance Academy
Last modified 1mo ago
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Contents
How Liquidity Pools Work