1. What’s “Liquidity Mining”?
Liquid Mining is a liquidity pool developed based on the AMM (Automatic Market Maker) principle. It consists of different liquidity pools, and each liquidity pool contains two digital tokens. You can provide liquidity in the pools to become a liquidity provider and earn transaction fees and flexible interest. Liquid assets can be added and redeemed in real time without any handling fees.
2. What’s “liquidity pool”
Each market that supports AMM has a corresponding liquidity pool, and the liquidity pool will provide funds for automatic market makers. When trading, the product of both numbers of the two cryptocurrencies in the pool remains constant. Users can become market makers by providing liquidity for the pool, thereby obtaining dividends from AMM transactions within the pool according to their shares. When adding liquidity, it is a must to add two currencies at the same time according to a certain ratio. When making a withdrawal, the liquid assets will be converted into two currencies and withdrawn at the same time.
3. How to add liquidity into a pool?
（1）Enter “AscendEX Earn” page, select KAVA/USDX Liquidity Pool among “Popular Investment Products”. Click “Deposit” to add liquidity.
（2）Deposit the two tokens of KAVA and USDX according to the required ratio.
（3）Click “Confirm” to complete the addition of liquidity.
（4）Click “Investment Account” to view the pool share and total income.
4. How do I unlock liquidity?
（1） Click “Redeem” on the “Investment Account” page.
（2） Enter the redemption amount and click “Confirm” to instantly redeem the deposited asset (the minimum redemption amount is 2,000, zero fees for instant redemption).
（3）The final redemption amount is subject to the redemption ratio.
The principal used for liquidity mining can be unlocked anytime. The unlocked liquidity will be converted into the corresponding currency and returned to your spot account. The returns generated from liquidity mining will be distributed on a daily basis, but they will be locked up for 45 days and displayed in the form of SWPLCK before being automatically unlocked.
5. Is liquidity mining a guaranteed investment?
Possible losses may be caused by impermanent losses. Impermanent loss refers to the loss caused by the price difference of the digital assets.
6. What are impermanent losses?
Impermanent loss refers to the loss caused by the price difference of the digital assets in an AMM liquidity pool at the time of deposit and withdrawal. No matter in which direction the price of digital assets changes, impermanent losses will occur, and the greater the difference, the greater the loss.
1) Assuming that there are 9 KAVA and 900 USDX in the KAVA/USDX liquidity pool and at this time 1 KAVA is worth 100 USDX. The total liquidity is 1800 USDX.
2) User A provides 1 KAVA and 100 USDX to the KAVA/USDX liquidity pool. Then there are 10 KAVA and 1,000 USDX in the liquidity pool, and the value of shares held by User A is 200 USDX (User A's share is 10%). Now, the total liquidity of the pool is 2,000 USDX.
3) If the price of 1 KAVA rises to 400 USDX. User B buys in KAVA and puts USDX into the liquidity pool. Although the product of the two currencies in the liquidity pool remains unchanged, the ratio of KAVA to USDX in the pool changes. Due to User B's transaction, there are currently 5 KAVA and 2,000 USDX in the pool.
4) If User A decides to withdraw all his funds (his share is 10%), he can withdraw 0.5 KAVA and 100 USDX. The total value of the withdrawal is 400 USDX. If User A chooses to keep holding 1 KAVA and 100 USDX, his total value of assets will reach 500 USDX and he will have a higher return. This is called impermanent loss.
(Note: Handling fees are left out for the convenience of calculation.)