Liquidity Pool

Liquidity pools are pools where users deposit and receive tokens when engaging in token swaps. The ratios of tokens within these liquidity pools automatically determine their pricing. Users leaving and taking tokens during a swap transaction also leave a certain fee in the pool. Liquidity providers receive a share of this fee. Consequently, liquidity pools serve as a passive income avenue for users.

V2 Liquidity Pool:

• The two most important advantages of V2 liquidity pool are its simple, intuitive interface and user-friendly experience.

• V2 Liquidity offers a straightforward interface for newcomers to the crypto and DeFi space. Liquidity addition and withdrawal processes are simple and do not require complex settings. Users can quickly provide liquidity by specifying token pairs and amounts. Its simplicity facilitates understanding and managing risks and returns.

• LP fee rewards do not compound automatically and must be claimed manually.

• Users need to remove their liquidity to obtain rewards.

V3 Liquidity Pool:

• The two most important advantages of the V3 liquidity pool are customizability and better capital utilization.

• V3 liquidity allows liquidity providers to select specific price ranges, enabling the development of more targeted investment strategies. Providers can optimize liquidity based on their anticipated price movements, aiming for higher returns. For instance, if you expect a token pair to stay within a certain price range, you can provide liquidity only for that range, safeguarding your capital against movements outside it. Unlike V2 liquidity pools, V3 utilizes capital in a more targeted manner.

• liquidity providers (LP) receive a variable Annual Percentage Return (APR) depending on various factors such as trading volume, liquidity pair fee tier, amount of tokens deposited, and selected price range.

• Users should trigger the "collect" function at regular intervals to obtain their rewards.