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Provide Liquidity

Providing Liquidity

When you provide liquidity you send your tokens to a smart contract and get "LP" (liquidity provider) tokens in return. When you provide liquidity you get some of the fees from that pool. So every time someone exchange EFX <-> BNB they pay a little fee and you get some of that fee depending on how much of that pool you have.

You need to provide the same dollar amount of EFX and BNB. So in this example I will need to have 1000 EFX and 0.171885 BNB.

Then those tokens will get sent to the smart contract an I will get LP-tokens in return.

When I want to remove my liquidity, PancakeSwap will recognize my LP-Tokens and allow me to withdraw EFX and BNB back.

Impermanent Loss

There's a risk when you provide liquidity, and that's impermanent loss. When you remove your tokes from the liquidity pool you will almost never get the same amount of tokens you put there. That's because of impermanent loss and the volatility of the EFX and BNB prices.

Before you consider providing liquidity, please make sure you understand the risks of impermanent loss.

Here's a good video on the subject: https://www.youtube.com/watch?v=3up4n1_pkQg

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