Liquidity pools can be profitable, but they come with unique risks and rewards that every investor should understand.
Every trade executed against a liquidity pool generates a small fee (typically 0.3% on Uniswap), which is distributed proportionally to all liquidity providers.
Many DeFi platforms offer additional token rewards to incentivize liquidity providers, often called "yield farming."
While not income, impermanent loss is a critical factor that can reduce potential profits when token prices diverge significantly.
Some platforms allow automatic reinvestment of earnings, potentially compounding returns over time.
For a $10,000 liquidity position with 0.3% fees and $1M daily volume:
Note: Actual returns vary based on volume, price changes, and reward structures.
Earn fees automatically from trading activity without active management.
Pools use algorithms to determine prices based on supply and demand.
Participate in financial services without traditional intermediaries.