This post is supposed to be the most accessible guide for using a Liquidity Pool. If you don't even know how to trade MOONs, I made a complete guide about that topic, you should start with this post. Here's a summary of what I'll cover in this guide

Summary

1. Understading Liquidity Pools
2. The Risks and Rewards
3. Requirements
4. Adding Liquidity to the Pool
5. Staking your LP tokens
6. Claiming your Rewards !

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1. Understading Liquidity Pools

I'm going to try to make it very simple. If you use a CEX like Kraken or CDC, when you buy or sell a token, you're actually buying or selling directly to someone. The exchange is only here to help you make the transaction with the other person. Of course, you're paying them fees to help you.

If you're using a DEX, you're not buying and selling directly to another person. You're interacting with a Liquidity Pool (LP). We're going to use our precious MOONs for the example. One of the pair is MOON/ETH, meaning that you can exchange Ethereum against Moons, or Moons agains Ethereum.

The LP is a balance of ETH and MOONs, that means that some people need to provide ETH and MOONs for other people to make a trade between the two. If you want to buy Moons, you're going to add ETH to the LP, in exchange the LP is going to give you Moons. It works both ways.

The more providers/liquidity there is, the better it is for the LP, for the tokens and for the community surrounding the tokens. It is a good thing for our MOONs if we have more liquidity in the pool !

Why does some people provide ETH and MOONs ? Because they can get something out of it, basically. Let's answer that !

2.a The Risks

Nothing is without risks ! By providing ETH and MOONs to the Liquidity Pool, you miss out on a few things. I'll highlight the specific risks of LPs, not crypto in general

• Risks of locking your funds on a DEX

Simple : not your keys not your coins, everything in a LP works because of Smart Contracts. They can have vulnerabilites if not written properly, leaving a risk of hack

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• Imperanent Loss

Let's try to make it simple again. The LP is like a scale, on one side there is ETH, on the other there is MOONs. If people only buy MOONs, using ETH, the scale is going to tip on one side. Because you're adding ETH, and removing MOONs from the scale (LP).

So you're going to have more ETH on your hands, and less MOONs. If the price of both stay the same, there's no issue at all. Imperanent Loss is when one of the two token changes price considerably. Because you're giving out your MOONs in exchange of ETH, if the MOON price shoots up, you'll be better off holding those MOONs. As always in a LP, it works both ways ! If the Ethereum price goes up a lot, but the MOON price doesn't, you may end up with a lot of Moons on your hands, but less ETH.

You're not actually losing anything, you're just gaining less than what you could've made with perfect trades !

Here's an in-depth post about Impermanent Loss and why it's not much of a loss

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2.b The Rewards

Liquidity Providers (people who add liquidity to the pool) are winning MOONs on every trade that people make on that LP !! You can even track it in real time !

Every time someone makes a trade, there's a bit of fees. A part of those fees are going to the Liquidity Providers ! The rewards are distributed proportionally, if you have 10% of the MOONs and ETH in the LP, you're going to get 10% of the rewards. Simple as that.

But wait, there's more ! Reddit and Sushi have partnered to reward the Liquidity Providers. And thanks to CCIP-051, each distribution the Liquidity Providers are given more Moons ! Right now, the APR is above 46% !

Remember : It is a good thing for our MOONs if we have more liquidity in the pool !

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3. Requirements

You need to have a wallet with MOONs and ETH on the Arbitrum Nova network.

That wallet needs to be connected to the Sushi App, I advise using a desktop browser you trust !

You can only add the same amount of MOON and ETH to the pool relative to their own price.

The current MOON price

If you want to add 1000 MOON, you'll need to also add 0.1625 ETH if we follow the current price. Remember, it's a scale !

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4. Adding Liquidity to the Pool

Let's get practical, I'll guide you, follow the screenshots !

Here's the list of Pools on Sushi : https://www.sushi.com/pool

You need to search for the MOON/ETH pair on the Arbitrum Network

Follow the Orange

Select this one for the best rewards

Select the Liquidity Pool, then Click on "Deposit"

Can't miss it !

There's the fun part ! Choose how much MOON you want to add to the LP. ETH will adjuste itself automatically, reflecting the price of MOONs !

Just input the number of MOON you want to add to the LP

You're going to need to accet the transaction on MetaMask, you might need to Approve the use of MOONs first, if you never traded MOONs. If you don't understand much about that, go back to the start, there's a guide about trading MOONs and it explains everything about that !

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5. Staking your LP tokens

You're going to receive Sushi Liquidity Pool tokens (SLP), that amount of SLP will represent your share in the pool. To get the most of the rewards, you'll need to stake those SLP. You can unstake them anytime you want, but it's like showing to the LP that you're serious about being a Liquidity Provider, adding trust to the LP, therefore adding trust to MOONs !

You'll need to approve the SLP token first

Then you can Stake !

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6. Claiming your Rewards !

Go back to the MOON / ETH LP and you'll see you're rewards going up in real time !

When you're ready to claim your rewards, click on the big "Claim" button ! I told you it was simple !

The APR is crazy good ! Enjoy your rewards !

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Congratulations for helping the r/cc community and prividing stability to MOONs !

Thanks for reading, I'm doing my best providing easy-to-follow guides related to our precious MOONs, feedback is appreciated !