Providing Liquidity on THORSwap

What's does it mean to provide liquidity?

A Quick Reminder!

If you are pooling in THORSwap, you will need to sell half of your RUNE to participate in a pool. There is not currently a RUNE:RUNE pool. You will no longer own 100% RUNE, and if the value of RUNE goes up while the value of the other asset in the pool is flat or negative, you see a decrease in your total RUNE-equivalent holdings compared to your original holdings. This is not impermanent loss. This is simply because a liquidity pool is an auto balancing portfolio between two assets, and you no longer own 50% of your RUNE, so you will experience the effects of the pool balancing. Always remember: you are now holding two assets.

An upcoming Synthetics feature will allow for single-sided LP with no impermanent loss.

How to Provide Liquidity

See RUNEBASE for detailed instructions

https://www.runebase.org/guides/how-to-lp-on-thorchain

What's the difference between Staking and Providing Liquidity?

Staking is a slightly ambiguous term that can mean both things. In short, "staking" means locking up your assets in a smart contract. Generally, you stake your tokens in order to generate interest (yield) or to vote for the governance of a protocol.

Liquidity Providers "stake" their assets into pools in order to collect fees from the trades made by other users on the network.

Where do my returns come from?

Stakers earn fees primarily through block rewards and are not necessarily exposed to market risks.

Liquidity providers earn returns from fees, proportional to the amount they stake. If you stake 100 tokens in an exchange pool that has a total of 1,000 tokens, you will own a 10% share of that pool. If an exchange charges a 0.3% fee to make a trade, you will collect 10% of that 0.3% fee. So, if a $10,000 trade is made, you will earn $3. LPs are exposed to market risks, and a large divergence in asset value can cause a loss of overall funds.

Please be Aware!

THORChain is not a magic money tree. A pool is essentially an auto-balancing portfolio. The pool's goal is to maintain an equal share of tokens relative to USD value. Keep in mind that you are exposed to two different assets. If you love RUNE, but sell half of it to enter the RUNE:BNB pool, do not expect to profit the same as holding 100% RUNE. You sold half of it. This is called opportunity cost -- or, the perceived loss when you compare actual profit versus "what could have been". For this reason, it is advised to only enter pools where you would normally hold both assets in your wallet in a 50/50 split.

Let's say you start with 1,000 RUNE, and RUNE is worth $1.

You sell 500 rune in order to buy 20 BNB at $25.

You now enter a RUNE:BNB pool where you hold 50% RUNE and 50% BNB.

RUNE price increases 2x, and you ask "Why do I not have $2,000 worth of RUNE total?" (your original 1,000 RUNE).

Remember, you sold half of your RUNE. You are now only 50% exposed to RUNE. Your pool share is now worth $1,500 (a 50% gain compared to holding 100% RUNE)

You now have ~350 RUNE (-150) and ~28 BNB (+8), because the pool balanced itself out. This is 750 RUNE total if you were to withdraw and swap your BNB back to RUNE.

If you want to HODL 100% RUNE, do not use BEPSwap to provide liquidity. Because you will need to sell half of it to buy the other asset.

Symmetric vs. Asymmetric Staking

In both cases, do not assume that you are entitled to 100% gains on one asset. You own a 50/50 share of two different assets. If one asset doubles in value, and the other drops in half, you will not experience a gain.

Symmetric Staking is staking an equal USD amount on both sides of a pool. If you want to stake 10 ETH in a ETH:DAI pool, and ETH is worth $350, you would therefore stake 10 ETH and 3,500 DAI.

Asymmetric Staking is when you only stake an asset for one side of a pool, and let the pool balance itself out, or allow the system to perform a swap on your behalf.

If you asymmetric stake with 100% RUNE, you will almost certainly experience a situation where you end up with less total RUNE than you started with. This is because you effectively sold half your RUNE for the other asset, and you are no longer entitled to the profits of holding 100% of a single asset. Conversely, if RUNE experiences a large drop in price, you will be partially sheltered from the loss, and will actually have more total RUNE.

If you asymmetric stake into an empty or shallow pool, you could lose all of your assets. Essentially, you unbalance the pool to such an extreme that an arbitrager will come along and pay "pennies on the dollar" for the asset you staked. Remember, CLPs depend on arbitrage for assets to normalize to market prices -- not outside oracles. So, if you were to create a new empty pool with 1,000 USDC, and 500 USDT, you have priced USDC at 50¢. A trader/bot will come along and balance that pool, and your stake will suffer a significant loss.

RUNEVault is a risk-free way of generating a small but consistent amount of interest on RUNE.

What is THORSwap?

THORSwap is an interface to interact with the THORChain network.

Other interfaces include Asgard Exchange and VANAHEIMEX

Soon, you will also be able to swap via the THORChain network directly from Trust Wallet.

What is Chaosnet?

Chaosnet is a "limited mainnet". Unlike testnet, which uses worthless test tokens, Chaosnet uses real assets, so real funds are flowing through the system.

Chaosnet [currently live]

  • Multi-chain

    • (BEP2, ETH, ERC20, BTC, and any other chain that implements a Bifröst module)

  • Real assets

  • Staking cap enforced for security

  • Funds potentially at risk. Critical bugs may exist, hence the fund caps.

Mainnet [not yet released]

  • Will replace Chaosnet

  • No fund caps

  • Multi-chain

    • (BEP2, ETH, ERC20, BTC, and any other chain that implements a Bifröst module)

  • Native tokens