5.Establish yourself as a liquidity supplier Intermediate to advanced skills
With the rise of DeFi, becoming a liquidity provider is a lucrative way to profit from your existing cryptocurrency holdings. As a liquidity provider, you will receive a percentage of every transaction that takes place on a specific decentralised exchange.
Impermanent loss is one of the obstacles of becoming a liquidity provider, and it is something you must be aware of. However, systems such as Bancor allow you to supply liquidity without fear of temporary loss. In 2021 and subsequent years, I believe we will see more Dex’s develop their own methods for dealing with transitory loss.
Here’s how to get started as a liquidity provider.
To become a liquidity provider, you can use any popular DEX. The only requirement is that you have cryptocurrency in your possession. Let’s say you want to supply liquidity on Bancor.
Bancor can be accessed with a web browser.
Wallet connect or Metamask can be used to connect it to your wallet.
After you’ve connected, go to Stake, select the pair, and give liquidity.
The following is a screenshot of how this liquidity provider operates:
There are three advantages of providing liquidity:
- Rewards in the form of platform token (Ex: BNT)
- APR or transaction fees that you would get when someone uses the platform for decentralized exchange.
- Appreciation of price over time